Drop in Magnificent Seven could drag down U.S. stocks, top fund manager says

U.S. stocks could drop by between 10% and 13% this year, dragged down by a selloff in seven mega-cap stocks that previously pushed broader markets to record highs, a senior executive at Morgan Stanley Investment Management told Reuters.

“We will begin to see the convergence between the rest of the market and mega 7, and that will continue,” said Kandhari. MSIM manages $1.5 trillion in assets. “If we have earnings growth that surfaces, then that number can go up,” Kandhari said. “But given current traction, 16.5 to 17 times is a good number on the S&P.”

Industrial stocks are currently attractive, Kandhari said. Shares of companies producing consumer staples and discretionary goods are also appealing, given Americans’ resilient spending.

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