Reuters
- The "Magnificent Seven" dominate the stock market to a worrying extent, one expert says.
- Deutsche Bank's economics chief, Jim Read, said investors should be wary of an economic slump.
- The US is now in the "snipers' alley" of recessions now based on when previous downturns hit, he said.
The "Magnificent Seven" are dominating the stock market to a worrying degree — and investors are underestimating the risk of a recession, one expert says.
Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta, and Tesla are collectively valued at more than $13 trillion, representing about a quarter of the entire US stock market.
"My natural inclination is to say this is crazy," Jim Read, the global head of economics and thematic research at Deutsche Bank, told the "Merryn Talks Money" podcast this week.
"As an economic historian, I have a bias to believe that this is nonsense and doesn't make sense and is warning us of more difficult times to come," he added.
However, Read noted the Big Tech giants seem less absurdly overvalued when you consider they generate more profits between them than other countries' whole stock markets. There was far greater speculation and far slimmer profits at the height of the dot-com bubble, he noted.
Read also warned the market is too relaxed about a potential recession. It's wholly convinced the Federal Reserve will deliver a "soft landing" where it crushes inflation without tanking the economy.
The veteran economist noted that soft-landing chatter in the media spiked sharply six to 18 months before each of the last three or four recessions.
Moreover, recessions have historically struck at least 19 months after the start of the Fed's hiking cycle, or last October this time around, he said. As a result, a recession is a greater risk now than a year ago, even if a soft landing is more likely.
The US is now in the "snipers' alley of recessions from a historical point of view," Read said.
The markets guru suggested that Americans' pandemic savings helped to shore up consumer spending and stave off a recession last year. But that spare cash is on track to run out by the year's end, he said.
At the same time, he cautioned that heavily indebted commercial real estate developers will soon have to refinance at much steeper interest rates.
They're already dealing with a plunge in office values fueled by the remote-working boom, and a credit crunch as smaller lenders have pulled back from the sector following the regional-banking fiasco last year.
Read's message seemed to be that between high-flying tech stocks dominating the market and the lingering threat of recession, investors can't afford to be complacent.