Catenaa, Sunday, December 14, 2025- Wall Street strategists are advising clients to buy less popular stocks and place bets on Health, Industrial, and Energy stocks.
Wall Street strategists at firms including Bank of America Corp. and Morgan Stanley are advising clients to buy less popular pockets of the market, placing sectors like health care, industrials, and energy at the top of their shopping lists for 2026 over the Magnificent Seven cohort that includes Nvidia and Amazon.
For years, investing in Big Tech firms has been a no-brainer, given their stalwart balance sheets and fat profits.
Now, there’s increasing skepticism over whether the sector, which has surged some 300% since the bull market began three years ago, can keep justifying its lofty valuations and ambitious spending on AI technology.
Earnings readouts from AI bellwethers Oracle and Broadcom that failed to meet lofty expectations amplified those concerns this week.
Worries around the red-hot trade come amid rising optimism over the broader US economy in the new year.
The setup may push investors to pile into the lagging groups in the S&P 500 at the cost of megacap tech.
There are already signs that stretched valuations are beginning to curb investors’ interest in once-unstoppable tech behemoths.
Flows are rotating into undervalued cyclicals, small-capitalization stocks, and economically sensitive segments of the market as traders position to benefit from the anticipated boost in economic growth next year.
Since US stocks hit their near-term low on November 20, the small-cap Russell 2000 Index has gained 11% while a Bloomberg gauge of Magnificent Seven companies posted half of that advance.
The S&P 500 Equal Weight Index, which makes no distinction between a behemoth like Microsoft and a relative minnow like Newell Brands, has been outperforming its cap-weighted counterpart over the same period.
Earnings growth for the S&P 493 is projected to accelerate to 9% in 2026 from 7% this year as the earnings contribution from the seven largest companies in the S&P 500 is set to fall to 46% from 50%, according to data from Goldman Sachs Group.
