The stock market is showing signs of diversification, according to Craig Johnson, chief market technician at Piper Sandler. He believes the market is moving beyond the dominance of the so-called ‘Magnificent 7’ tech giants, which includes Nvidia, Apple, Alphabet, Meta, Microsoft, and Tesla.
During a CNBC interview, Johnson emphasized the importance of understanding the market’s composition, particularly the balance between large, mid, and small-cap stocks. He pointed to the strong performance of Nvidia’s recent quarterly earnings as a prime example of this shift. While Nvidia exceeded expectations by a significant margin, its stock experienced a post-earnings dip, highlighting a potential shift in market sentiment.
Johnson’s advice is not to overanalyze the market, but rather to consider its broader makeup. He argues that the ‘Magnificent 7’ are no longer the sole drivers of growth, and investors should look for opportunities in the mid-cap sector. “You can actually find better looking stocks in the mid cap world that look a lot more constructive. That sort of change is happening. This is a market that’s broadening out, it doesn’t have to be led by the Mag 7,” Johnson stated.
The market’s broadening is a positive sign, suggesting a healthy shift away from concentrated growth in a few select companies. While Nvidia’s robust data center performance and positive revenue forecast for the third quarter offer a potential buying opportunity, the broader market’s diversification indicates a more balanced and sustainable growth trajectory.
