BofA Global Research said on Wednesday it expects the S&P 500 to end 2023 nearly 7% higher than it previously forecast, and that “old economy” stocks on the blue-chip index could benefit as much, if not more, over their new-age tech peers.
The S&P 500 is up 15.7% so far this year, largely driven by a rally in a handful of mega-cap growth stocks such as Nvidia and Meta that have ridden the artificial intelligence boom. An equal-weight index assigns uniform weights to each constituent, unlike a market capitalization-based index, like the S&P 500, where bigger companies tend to have an outsized influence. Equal-weighted stocks have less volatile earnings, smaller differences in analysts’ estimates, and are cheaper and less crowded than growth stocks, Subramanian said.
While the S&P 500 is roughly in line with its historical average on an equal-weighted basis, the valuation gap between the top seven stocks and equal-weighted stocks is the highest since the 2001 Tech bubble, Subramanian notes.However, even mega-caps have a chance if they keep valuations attractive, like Meta did when it cut costs and announced a buyback early this year, Subramanian said.
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