2026 Market Could Soar 10% - But Don't Count On The Mag 7

Core Viewpoint - The investment outlook for big tech, particularly the "Magnificent Seven," is being dialed back as competition from artificial intelligence increases, leading to higher spending and potential profit margin compression [2][3][4]. Group 1: Market Outlook - The Magnificent Seven currently represent about 30% of the S&P 500 market cap, suggesting room for reduced exposure in this area [4]. - The overall market is expected to see a 10% gain in 2026, with projections of the S&P 500 rising from approximately 7,000 to 7,700 [9]. - Long-term projections suggest the S&P 500 could reach 10,000 by the end of 2029, based on anticipated earnings of $500 per share in 2030 [10]. Group 2: Sector Analysis - While underweighting the Magnificent Seven, there is still bullish sentiment towards semiconductors and specific stocks in the communication services sector, such as Meta and Netflix [5][6]. - The combination of information technology and communication services accounts for 45% of the S&P 500, raising questions about the sustainability of further overweighting these sectors [6]. Group 3: Economic Indicators - Earnings growth has been strong, with projections of earnings per share increasing from $265 this year to $310 next year, aligning with industry analyst consensus [13]. - The economy has shown resilience, with real GDP growth tracking at nearly 4% in Q2 and about 3.5% in Q3, despite some labor market weaknesses [14][15]. Group 4: Labor Market Dynamics - There are structural issues in the labor market, including a skills mismatch for new graduates and a slowdown in hiring due to companies assessing AI's impact on productivity [17][18]. - The unemployment rate remains low for adults aged 30 and older, but younger job seekers face challenges due to the retirement of skilled baby boomers [18]. Group 5: Investment Strategy - The NASDAQ 100 has been a strong performer, averaging a 20% gain over the past decade, suggesting it may be a good long-term investment opportunity [23]. - The strategy involves short-term focus on the S&P 500 while looking for opportunities to buy the Magnificent Seven at lower valuations [25][26].