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According to one expert, the “Magnificent Seven” has an alarming amount of control over the stock market.
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Jim Reid, head of economics at Deutsche Bank, said investors should be wary of an economic downturn.
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He said the U.S. is currently in “sniper’s alley” of a recession based on the timing of past recessions.
The Magnificent Seven has an alarming degree of control over the stock market, and investors are underestimating the risk of a recession, one expert says.
Microsoft, appleNvidia, Amazonalphabet, Metaand tesla The total value is valued at more than $13 trillion, or about a quarter of the entire U.S. stock market.
“My natural inclination is to say this is crazy,” Jim Reid, global head of economics and thematic research at Deutsche Bank, said on the “Merin Talks Money” podcast this week. .
He added: “As an economic historian, I have a bias to believe that this is nonsense, it doesn’t make any sense, and that it is a warning of even more difficult times ahead.”
But Reid noted that given that big tech companies generate more profits than the rest of the world’s stock markets as a whole, it doesn’t seem like they’re wildly overvalued. He pointed out that at the height of the dot-com bubble, there was much more speculation and much less profit.
Mr Reid also warned that the market was being too relaxed about a potential recession. He is fully confident that the Fed will achieve a “soft landing” that keeps inflation in check without making the economy worse.
The veteran economist noted that media talk of soft landings has spiked six to 18 months before each of the past three or four recessions.
Additionally, he said recessions have historically occurred at least 19 months after the start of the Fed’s rate hike cycle, this time in October of last year. As a result, the risk of a recession is greater than it was a year ago, even if a soft landing is more likely.
Mr. Reed said the United States is currently in “sniper’s alley of recession, from a historical perspective.”
Market experts suggested that Americans’ pandemic savings boosted consumer spending and helped stave off last year’s recession. However, the surplus funds are expected to be exhausted by the end of the year.
At the same time, he warned that heavily indebted commercial real estate developers may soon be forced to refinance at even steeper interest rates.
They are already grappling with a collapse in office values due to the remote-work boom and a credit crunch as small lenders exited the sector after last year’s local bank debacle.
Reid’s message seemed to be that between market-dominating tech stocks and the threat of a lingering recession, investors can’t afford to be complacent.
Read the original article on Business Insider
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