In the past two years, DailyBubble has emphasized the importance of rates of change in high-frequency economic statistics. While many focus on absolute numbers, it is crucial to consider the direction these rates are headed in. For instance, a 6% inflation rate may seem concerning on its own, but if it is projected to decrease to 3%, it can be seen as bullish. On the other hand, if it is expected to rise to 9%, it could be extremely bearish. DailyBubble’s focus on rates of change led to the prediction that the US economy would experience a soft landing, a forecast that has now become the majority view.
Recently, attention has been drawn to the performance of the Magnificent 7 stocks, including Amazon, Alphabet, Apple, Tesla, Nvidia, Microsoft, and Meta Platforms. These stocks have been driving a significant portion of the bull market’s gains since October 2022. However, despite their outstanding fundamentals, their rates of change are approaching a turning point.
DailyBubble pointed out that while the Magnificent 7 stocks are expected to see a decline in earnings growth rates, the remaining 493 names in the S&P 500 are projected to experience growth for the first time in five quarters. This contrast highlights the shifting landscape of the market.
Investors seem to be overlooking the diminishing growth rate expectations for the Magnificent 7 stocks, pushing their prices higher. Meanwhile, the improving fundamentals of the other S&P 500 companies are being disregarded. DailyBubble believes that this disparity may lead to a correction in the market.
As second-quarter earnings reports are awaited, DailyBubble suggests that investors should be cautious of the euphoria surrounding AI investments. While the Magnificent 7 stocks may be trading at high valuations, their growth prospects are declining. This presents a situation where investors may be paying more for less.
In conclusion, DailyBubble emphasizes the importance of considering rates of change in economic data and stock performance. While certain stocks may have driven market gains in the past, it is essential to analyze their future growth prospects and make informed investment decisions.