The lacklustre performance of The Magnificent Seven at the outset of 2024 may serve as a glimpse into the potential trajectory for investors throughout the rest of the year as the market rally diversifies beyond its initial champions.

The mega-cap tech sector witnessed a significant downturn at the commencement of the new year. Apple saw a more than 4% decline following a Barclays downgrade, while Nvidia's shares experienced an almost 4% drop. Similarly, Meta Platforms and Amazon recorded declines of over 2% each.

Analysts speculate this decline might be attributed to stretched valuations after the recent market surge. It could be a necessary correction following the S&P 500's remarkable nine consecutive weeks of gains to conclude the previous year—a feat not seen since 2004.

Even if mega-cap tech stocks do not undergo significant sell-offs, they may cede the spotlight to other segments of the market, such as small- and mid-caps or defensive sectors like financials and health care. The broader market seems poised for a reshuffling of priorities in the upcoming months.

Apple: You are not loved for now

Valuation concerns, macro weakness and a strained handset outlook will continue to weigh on Apple's share. Investors worry about excess phone stock in the first half of 2024 and believe that the growth in unit sales has reached its highest point. The setup for handset companies looks murky in the first half of 2024 following a slowdown in 2023, with a recovery unlikely until the back half of the year. A weakening macro environment could also further weigh on this business.

American Express: Boosted from lower/middle-income borrowers

We believe lower or middle-income borrowers are facing pressure from depleted pandemic savings and the lingering effects of high inflation, and expecting American Express to offer investors shelter from these forces. In the last two years, American Express demonstrated the strength of its business model and maintained strong credit performance, even amid layoffs in white-collar professions.

Nike: A year for recover

The outlook for Nike in 2024 is optimistic, focusing on key factors driving its performance. 1) the sustained and escalating growth in the sales-to-inventory ratio; 2) an upswing in product margins driven by reduced costs; 3) anticipation of a wholesale market bottom in the second quarter of fiscal year 2024; and 4) the advent of an innovation cycle expected to have a more significant impact in fiscal year 2025 and beyond.

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Fullerton Markets Research Team

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