Dudley: More than half of the Magnificent Seven have underperformed the S&P

Market Overview & Strategy - The market has been too focused on the Magnificent Seven, with over half underperforming the S&P year-to-date, suggesting a broadening market [3] - The strategist recommends focusing on the S&P equal-weighted index, anticipating it will outperform the market-weighted index [4] - The firm favors mid-cap stocks, specifically those with high quality characteristics [4] Investment Opportunities - The firm defines quality as companies with high returns on invested capital, low net debt to EBITDA, and high returns on equity [6] - The firm is bullish on AI and seeks companies that can make upfront investments, benefiting from tax bill incentives like R&D expense deductibility [7] - Opportunities exist within the mid-cap space, particularly in the quality spectrum [7] Macroeconomic Factors - The EU-US trade deal provides certainty to European markets and supports the US market [2] - The likelihood of a September rate cut by the Federal Reserve has decreased from approximately 90% to under 60% due to a stronger economy [8][9] - The firm anticipates the US-China trade talks will result in an extension, which is viewed as positive for the market [10][11]