Investors are looking for what will drive the market in 2023 after two years of strong performance from U.S. stocks. Both Wolfe Research and UBS agree that the answer is megacap tech, led by the 'Magnificent Seven' group of large tech companies, which have been boosted by artificial intelligence for over a year. Wolfe chief investment strategist Chris Senyek expects this trend to continue as companies invest more in technology.
He believes that Technology and Communication Services will outperform the market in 2025, driven by strong fundamentals and increased AI spending. He also points out that technology companies have the largest share of companies expected to achieve revenue growth above 10% in 2025. Senyek believes that more cyclical stocks within the Magnificent Seven, such as Amazon, Meta, and Nvidia, will be particularly attractive during periods of uncertainty. While UBS investing chief David Lefkowitz acknowledges that U.S. stock valuations are historically high, he emphasizes that profit growth is more important. He agrees that AI-exposed segments of the market will continue to outperform.