Magnificent Seven Lose Their Luster
Jim Cramer, the energetic host of CNBC’s Mad Money, believes 2024 will bring major changes in market leadership. The longtime stock picker sees cracks forming in big tech stocks like Apple and Microsoft that propelled indexes to great heights over the past decade.
“The magnificent seven stocks simply aren’t as magnificent as they once were,” Cramer explained on January 3rd. “I think after these incredible runs, it makes sense for investors to take some profits off the table.”
The host, known for his dramatic sound effects and sleeve-wearing antics, has guided viewers to some massive winners over the years. However, the stalwart FAANG names now worry him heading into the new year.
| Stock | 10 Year Return |
|---|---|
| Apple | 1,200% |
| Microsoft | 780% |
| Amazon | 580% |
| Meta | 250% |
| Netflix | 125% |
| 370% |
“To put some numbers on it, Apple and Microsoft have gained over 1,000% and 700% respectively in the past decade,” said Cramer. “That kind of performance can’t go on forever.”
Besides taking profits, Cramer suggests waiting for an inevitable pullback before adding more exposure. “No one ever got hurt taking a little off the table after gains like these magnificent seven have put up.”
New Leaders Waiting in the Wings
If the long-time market guru sees cracks in former high-flyers, what does he view as potential 2024 winners?
True to form, Cramer shared his characteristic enthusiasm for several new areas catching his eye. The Mad Money host sees particular promise for industrial stocks to regain leadership.
“I’m itching to buy more stocks like Deere, Honeywell, and Caterpillar on any pullbacks in 2024,” explained Cramer. “These stocks will benefit from renewed infrastructure projects in the new year.”
Besides heavy machinery, Cramer called out regional banks as an overlooked area. He feels investors grew too negative on the group, presenting opportunity in 2024. Other areas catching his eye include healthcare, travel & leisure, and fossil fuel plays unloved by ESG investors.
“There are so many areas outside the magnificent seven with fantastic setups for 2024 that got left behind,” said Cramer. “I think we see that changing this year as the market broadens out.”
The CNBC host isn’t abandoning technology altogether. He still sees potential in secular growers less vulnerable to economic cycles. However, Cramer stresses the need for selectivity after the rapid rise.
“It’s not like I’m giving up on the magnificent seven and telling everyone to sell all their tech stocks,” clarified Cramer. “I just think after this incredible decade-long run, we will see new leadership grab the baton in 2024 while these former high flyers take a breather.”
Looming Recession Threat
Beyond mere sector rotation, Cramer sees macroeconomic trends aligning that could dethrone former market darlings. The biggest wildcard he identified is the increasing odds of a potential recession.
| Recession Probability Data | Current Estimate |
|---|---|
| Bloomberg economists | 60% by end of 2024 |
| Goldman Sachs | 48% in next 2 years |
| Wells Fargo | 50-50 odds by Q3 2024 |
“Look, I’m not sitting here saying a recession is guaranteed over the next year,” stressed Cramer. “But there are enough warning signs with inflation still hot and the Fed adamant to get it under control that investors need to remain vigilant.”
Cramer sees prolonged Fed tightening as the biggest catalyst that could unsettle markets. He expects ongoing rate hikes to weigh on consumer spending and business investment, eventually dragging down economic growth.
The renowned stock picker pointed out that many former high-flying tech stocks thrived in an ultra-low rate environment. He thinks a shifting landscape with higher financing costs and slimmer growth prospects warrants caution. This is especially true after many names tripled or quadrupled over the past decade.
“Higher rates simply aren’t the elixir for incredible tech stock returns we got used to over the past 10 years,” warned Cramer. “If we do enter a recession later in 2024, expect markets to reprice many of these former magnificent seven winners.”
So while the Mad Money host hasn’t given up on iconic tech giants, he stresses exercising prudence after such an incredible run. He recommends broadening horizons in 2024 to areas less vulnerable in challenging economic environments.
“My focus is on forgotten areas of the market with better setups,” explained Cramer. “I expect new leadership to emerge outside the magnificent seven in 2024 while these former stalwarts pause to catch their breath.”
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