European Cyclical Stocks Overvalued, Analysts Warn
- JPMorgan says top-performing tech stocks are undervalued compared to rival stocks
- European cyclical stocks are overvalued
- Magnificent Seven tech companies are trading at below median levels for the past five years
- Stock markets could become more concentrated, boosting the Magnificent Seven stocks
- The Magnificent Seven drove all of the S&P 500’s net income growth in 2023
- European markets are also becoming increasingly concentrated
- Cyclical stocks could potentially disappoint as their earnings soften
According to JPMorgan, the top-performing tech stocks, known as the Magnificent Seven, are actually undervalued compared to rival stocks. While these tech companies are trading at high prices in absolute terms, they are trading at lower than average prices compared to the past five years. On the other hand, European cyclical stocks are overvalued, with higher-than-average prices compared to defensives. JPMorgan’s analysts predict that stock markets could become more concentrated, further boosting the Magnificent Seven stocks. These tech companies accounted for 28% of the market capitalization of the entire S&P 500. In 2023, the Magnificent Seven drove all of the S&P 500’s net income growth, outperforming the rest of the index. European markets are also experiencing increased concentration, with ‘Granolas’ accounting for a quarter of Stoxx 600 market capitalization. While this concentration is seen as unhealthy, the rally driven by the Magnificent Seven may continue. However, JPMorgan’s analysts warn that cyclical stocks could disappoint as their earnings start to soften.
Factuality Level: 3
Factuality Justification: The article provides information based on analysis from JPMorgan’s analysts, but it lacks depth and context. It presents a one-sided view without considering potential counterarguments or differing opinions. The article also contains some repetitive information and does not delve into the broader implications or potential risks associated with the analysis presented.
Noise Level: 2
Noise Justification: The article provides a detailed analysis of the current valuation of top-performing tech stocks compared to European cyclicals. It includes information on earnings growth, market concentration, and potential future trends. The article stays on topic and supports its claims with data and examples. However, it contains some repetitive information and could benefit from more diverse perspectives.
Financial Relevance: Yes
Financial Markets Impacted: The article provides analysis on the valuation of tech stocks, specifically the Magnificent Seven (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla). It compares their valuations to European cyclicals and suggests that the tech stocks are undervalued.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article focuses on the valuation of tech stocks and does not mention any extreme events or their impact.
Public Companies: Alphabet (GOOGL), Amazon (AMZN), Apple (AAPL), Meta Platforms (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA), JPMorgan (JPM)
Key People: Mislav Matejka (Lead Analyst)
Reported publicly:
www.marketwatch.com 
