 | ||||
| ||||
Over the last six months, the stock market has undergone a meaningful shift beneath the surface. Major indices have traded largely flat to lower, masking a significant rotation in leadership. The Magnificent Seven, which had powered the market higher for much of the last three years, stalled and in many cases declined, as investors grew increasingly concerned about AI-related capital expenditures and elevated valuations. At the same time, capital rotated aggressively into international equities, commodities, and cyclical sectors. This divergence created one of the more unusual backdrops in recent years, where the market appeared stable at the index level, but leadership was actively changing. Importantly, this rotation is an encouraging development, not a concerning one. Earlier in the bull market, one of the primary concerns among investors was the extreme concentration of returns within the Magnificent Seven. That dynamic raised questions about increased risk and the durability of the rally. Today, that concern is beginning to fade. Market participation has broadened, with a wider range of sectors and regions contributing to performance. Thus, this is not just a function of capital flows. Many of these areas are advancing on the back of improving fundamentals, including accelerating sales, expanding margins, and rising earnings estimates. According to Zacks' own research, excluding the Magnificent Seven, S&P 500 earnings growth is expected to come in at +10.6% in 2026, up from +9.6% in 2025 and +4.4% in 2024. This type of broadening, supported by real earnings growth, tends to reinforce the strength and longevity of a bull market rather than signal its end. That said, the Magnificent Seven continues to deliver exceptional growth, further strengthening the broader earnings backdrop. Now, that setup is beginning to shift once again. The combination of a reset in valuations, fading pessimism around AI spending, and a spike in volatility tied to geopolitical tensions is creating what may be one of the more compelling buying opportunities of the year. From Leaders to Laggards and Back Again The Magnificent Seven did not fall out of favor due to deteriorating businesses. Instead, the shift was largely narrative-driven. Concerns around "AI overspending" and stretched valuations led to multiple compression across the group, even as underlying fundamentals remained strong. These companies continue to sit at the center of the most important secular growth trends in the global economy, including cloud computing, artificial intelligence, consumer electronics and digital advertising among others. In many cases, growth expectations remain robust, and in some areas, such as cloud, are beginning to reaccelerate. Total 2026 earnings for the group are expected to increase by +18.4% on +15.7% higher revenues, following estimated 2025 earnings growth of +24.8% on +15.5% higher revenues. That spread in earnings between this and last year is AI capex. After several months of consolidation and declines, valuations across much of mega-cap technology have moderated significantly. Investors are now being offered the opportunity to own some of the highest-quality, most dominant businesses in the world at far more reasonable entry points than were available just six months ago. Forward earnings multiples across the Magnificent Seven now range from just 20.3X and 23X for Meta and NVIDIA to roughly 27X and 29X for Amazon and Apple—levels that appear reasonable given their growth forecasts and market dominance. More . . . | ||||
| ||||
| Geopolitical Volatility: Risk or Opportunity? Adding to the uncertainty, escalating tensions in Iran have introduced a new source of volatility into global markets. Oil prices have moved sharply higher, and investors are increasingly weighing the potential for broader economic implications. Fortunately, we have existing frameworks to view this uncertainty from. In the vast majority of cases, geopolitical shocks have created short-term dislocations that ultimately proved to be attractive buying opportunities. Markets tend to sell off on uncertainty, only to recover as worst-case scenarios fail to materialize. Importantly, empirical research supports this view. Studies of geopolitical risk, including the widely cited geopolitical risk index developed by Caldara and Iacoviello, show little consistent relationship between spikes in geopolitical risk and future equity returns over both short- and medium-term horizons. In other words, investors have generally been rewarded for looking through geopolitical noise rather than reacting to it. The primary exception in recent history remains the 1973-74 oil crisis, where a sustained supply shock led to persistent inflation and a prolonged economic downturn. Notably, even in that case, while the catalyst was geopolitical, the market drawdown ultimately played out through economic deterioration. This distinction reinforces the idea that economic risk, rather than geopolitical risk alone, tends to drive more sustained bear markets. For now, that outcome appears less likely, but it is by no means impossible. While higher oil prices could introduce near-term inflationary pressures, the broader macro backdrop remains far more resilient. Global growth is holding up, and key structural drivers of demand remain firmly in place. As a result, the current bout of volatility is more likely to represent a temporary disruption rather than a fundamental shift in the market's long-term trajectory. The Foundation of the Bull Market Remains Intact Despite recent market turbulence, the core drivers that have fueled this bull market are still very much in play. First, the AI-driven capital expenditure cycle continues to expand, with estimates of $700 billion in spending this year. Hyperscalers are investing at an unprecedented pace in data centers, semiconductors, and supporting infrastructure. This wave of spending is not only supporting growth within the technology sector but also creating ripple effects across industrials, energy, and materials. Second, fiscal spending remains elevated, and liquidity conditions are still supportive of risk assets. Although rising oil prices have pushed Federal Reserve expectations more hawkish in the near term - though their outlook is still totally uncertain - there remains a clear path back toward more accommodative policy depending on how inflation trends evolve. Third, and perhaps most importantly, AI-driven productivity gains are still in the early stages. The market has thus far been focused primarily on the infrastructure buildout phase. However, the next phase, broad-based integration of AI into business operations, has the potential to drive meaningful efficiency gains and margin expansion across industries. This transition represents a powerful and underappreciated tailwind for corporate earnings over the coming years. Where the Opportunity Is Today With sentiment reset and volatility elevated, several areas of the market stand out as particularly attractive. Mega-cap technology companies, including the Magnificent Seven, now offer a more compelling balance between growth and valuation. These businesses remain dominant within their respective industries and continue to benefit from multiple long-term secular trends. At the same time, AI infrastructure and adjacent industries are amid multi-year expansion. Companies tied to semiconductors, networking, and data center development are still seeing strong demand supported by ongoing capital investment. Software, which has been among the hardest hit areas during the recent rotation, is also beginning to look increasingly attractive. Though the prevailing narrative, which has dragged down the sector, is that software will be broadly disrupted, it seems more likely that the majority of these businesses may actually be enhanced by the technology. While there will inevitably be a subset of companies that face disruption, they are likely to represent a minority rather than the rule. Using the Zacks Rank to Identify the Best Opportunities In environments like this, where macro narratives read uncertain and leadership is shifting, stock selection becomes increasingly important. The Zacks Rank remains one of the most effective tools for identifying stocks with improving earnings outlooks and strong momentum. By focusing on companies experiencing positive earnings estimate revisions, investors can better align themselves with the areas of the market where fundamentals are strengthening. A timely example is NVIDIA, which was recently upgraded to a Zacks Rank #1 (Strong Buy) following a wave of upward earnings revisions over just the past week. Notably, NVIDIA also earned a Zacks Rank #1 in early 2023, right as the AI boom began to accelerate, providing an early and highly effective signal of the stock's leadership. This highlights the core strength of the system. The Zacks Rank is driven by changes in earnings expectations, which are often the earliest indicator of improving fundamentals. As the AI trade evolves and leadership begins to reassert itself, the Zacks Rank can help investors stay focused on the names most likely to lead the next leg higher. Opportunity Emerges Amid Uncertainty Markets rarely offer clear, comfortable entry points. More often, the best opportunities emerge during periods of uncertainty, when sentiment is mixed and volatility is elevated. That is the environment investors find themselves in today. After six months of consolidation, a reset in mega-cap valuations, and a temporary surge in geopolitical risk, the market is once again presenting attractive opportunities across some of its most important long-term themes. The AI narrative has not broken but rather appears to have simply paused. And if history is any guide, periods like this tend to reward investors willing to look beyond the noise and focus on the underlying trends that continue to drive the market forward. Take Advantage Today As AI infrastructure and adjacent industries continue to expand, demand and revenue for semiconductor stocks continue to boom. That's why Zacks has released a Special Report, The Semiconductor Surge: A Single Stock to Watch, and you're invited to be one of the first to see it. This company has quietly become a linchpin in the Artificial Intelligence and Big Tech ecosystems. It doesn't make chips... but chipmakers like NVIDIA have insatiable demand for the technology it develops. The company is just beginning to enter the spotlight, which is exactly where you want to be. I encourage you to take advantage right away. The earlier you get in, the greater profits you stand to make. But don't delay. We're limiting the number of investors who share our Zacks Rank #1 (Strong Buy) stock, so this opportunity will end at midnight Sunday, March 29. Gain Access to our Bonus Semiconductor Surge Report Right Now for Just $1 » All the Best,
Ethan Feller has a decade of experience trading in markets. He graduated from Ithaca College with a BA in Economics. Prior to joining Zacks, Ethan worked at a proprietary trading firm where he focused on statistically significant short-term trading strategies in stocks and futures. He invites you to access our Special Report, The Semiconductor Surge: A Single Stock to Watch, for a total cost of only $1. | ||||
 | ||||
| ¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades. This free resource is being sent by Zacks.com. We look for investment resources and inform you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms of Service". https://www.zacks.com/terms_of_service Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research is not a licensed securities dealer, broker or U.S. investment adviser or investment bank. The Zacks #1 Rank Performance covers the period beginning on January 1, 1988 through March 2, 2026. The performance is the equal weighted performance of a hypothetical portfolio consisting of stocks with a Zacks Rank of #1 that was rebalanced monthly from January 1988 through December 2013 and weekly from 12/31/13 through Monday's open on March 2, 2026. For each stock with a Zacks Rank #1 at the beginning of the month, the total return during the month was calculated as the % change in the price of the stock from the closing price of the prior month to the closing price of the current month plus any dividends received during the month. The monthly individual stock returns were then averaged to determine the portfolio return for the month. For each stock with a Zacks Rank #1 at the beginning of the week, the total return during the week was calculated as the % change in the price of the stock from the opening price for the week to the opening price of the next week plus any dividends received during the week. The weekly individual stock returns were then averaged to determine the portfolio return for the week. If no month-end price or week end open price was available for a stock, it was not included in the portfolio return for the month or the week. The monthly and weekly returns were compounded to arrive at the annual returns. The annualized return is the annual return that, had it been achieved in each year or portion of a year, would have compounded to create the total return over the full time period. These returns are based on the list of Zacks Rank #1 Stocks that was available to clients of Zacks as of the beginning of the month, when returns were calculated monthly, or as of the beginning of the week when returns were calculated weekly. These returns are higher than the returns an investor could achieve investing real money in a portfolio of Zacks Rank #1 stocks because the returns of the hypothetical Zacks Rank #1 portfolio exclude a number of costs, including commissions incurred for trading, the average bid ask spread, the price impact of the trading and, prior to 2013, in those months when the end of the month fell on Friday, Saturday or Sunday, the overnight return from the month end close to the open on the next trading day. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance_disclosure for information about the performance numbers displayed above. Zacks Emails Zacks Investment Research |
Sabtu, 28 Maret 2026
The AI Trade Reloads: Market Fear Creates Opportunity
Langganan:
Posting Komentar (Atom)
Tidak ada komentar:
Posting Komentar