Recommend Trimming the "Magnificent Seven"! The "Wall Street Veteran" Who Has Been Bullish on Tech Stocks for 15 Years Is Turning

Ed Yardeni, a senior figure in the U.S. stock market and founder of Yardeni Research, is currently advising: Investors should substantially reduce holdings in the tech "Magnificent Seven" relative to the rest of the S&P 500 components, anticipating a shift in future earnings growth.

This long-time bull-market "Wall Street veteran" said, "We see more competitors eyeing the juicy profit margins of the Magnificent Seven," and expects tech developments to boost productivity and profit margins for the rest of the S&P 500.

Yardeni added that essentially "every company is evolving into a tech company."

In a research note on Sunday, he pointed out that the practice of recommending "overweight" in the information technology and communication services sectors since 2010 is no longer justified.

The firm suggests adjusting these two sectors to "market weight," while increasing "overweight" allocations to financials and industrials, and implementing an "overweight" strategy for healthcare.

The "Magnificent Seven" index — covering top U.S. tech firms like Nvidia, Meta, and Google parent Alphabet — has surged over 600% since end-2019, far outpacing the S&P 500's 113% gain during the same period. This phenomenon stems from the tech giants' boom during the pandemic and recent AI fervor.

Yardeni also believes that the rationale for continuing to overweight U.S. stocks in a global MSCI portfolio is no longer sufficient, especially as other global markets have delivered stronger performance this year at lower valuations, amid a weaker dollar and resilient corporate earnings outperforming the U.S.

With less than a month left in 2025, emerging-market stocks are likely to outperform U.S. stocks for the first time in five years. As of end-November, the dollar-denominated MSCI Emerging Markets Index is up 27% year-to-date (25% in local currency), beating the S&P 500's 16%.

Mitsubishi UFJ Asset Management chief economist Takashi Irimura recently said that the impact of easing monetary policies across countries on economies and businesses remains to be seen. However, diversification and reducing reliance on U.S. assets will be a mid-term investment theme.