A significant shift away from artificial intelligence stocks might be forming in the market.
According to John Davi of Astoria Portfolio Advisors, a wider array of stocks is beginning to receive a 'green light' as liquidity makes its way back into the financial system.
'The Fed cut rates four times last year. They have already cut rates twice this year, and they're likely to do so again, whether in December or January,' said the firm's CEO and chief investment officer during an appearance on CNBC's 'ETF Edge' this week. 'Historically, whenever the Fed decreases interest rates, it's usually indicative of a new cycle. Market leadership tends to shift quietly.'
Davi points to recent performance in sectors ranging from emerging markets to industrials. As of the market close on Wednesday, the iShares MSCI Emerging Markets ETF, which tracks emerging markets, has seen a 17% increase over the past six months. Similarly, the Industrial Select Sector SPDR Fund has risen by 9% in the same time frame.
'I believe these can serve as a good offset to expensive large-cap tech positions that dominate most portfolios,' he explained. 'We are living in a world with structurally higher inflation. With the Fed cutting rates, why take so much risk by concentrating on just seven stocks?'
Davi advocates for a globally balanced investment approach rather than an overweight focus on the Magnificent 7 — a group consisting of Apple, Amazon, Meta Platforms, Nvidia, Microsoft, Tesla, and Alphabet, the latter of which has been trading near record highs. The Magnificent 7 accounts for about a third of the S&P 500.