In This Article:
Following the tech sector's 2023 rallies, Wall Street keeps hoping for gains to broaden out across markets. "It does need to broaden. When you look at the market last year, it was so concentrated in the Magnificent Seven stocks. Coming into last year, a lot of them were very undervalued," Morningstar Chief US Market Strategist David Sekera tells Yahoo Finance.
Sekera comments on valuations and earnings expectations in the tech sector.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
JULIE HYMAN: David, is there any area that is not going to get a tailwind from those interest rates coming in?
DAVID SEKERA: Well there's a couple of different areas of the market that we think have just run up too far too fast-- one of them being the technology sector overall. While it was one of the most undervalued sectors coming into 2023, Morningstar US Technology Index was up I believe 59% last year. At this point, it's trading about 5% to 10% overvalued in our view. So I actually see better opportunities to lock in some profits in the tech sector. Take those gains. Put them into some of those areas that lagged last year that are still undervalued.
JOSH LIPTON: It's interesting, Dave, when we talk about tech, it wasn't so long ago, we would have plenty of bulls come on the show and say, listen part of the reason they were bullish about 2024 is because they expected to see this broadening in the rally, David. But really, as we sit here in January, we're all just talking about big tech again, right? I mean, can the rally continue if it stays so focused, or no, it does need to broaden?
DAVID SEKERA: It does need to broaden. So when you look at the market last year, it was so concentrated in the Magnificent Seven stocks. Coming into last year, a lot of them were very undervalued. I mean, six of those seven stocks were either four or five star rated stocks in our view. At this point, it's exactly the opposite. Six of those seven stocks are actually now all three star stocks. They're all pretty close to fair value, in our view.
We actually think Apple has run up too high. That's now a two-star rated stock. So I think that story is behind us. That's a 2023 story. When we look for value today, now broadly speaking, we think the market is pretty close to fair value. We're not seeing a lot of upside away from just kind of normalized returns going forward for the market itself. But when we break it down, we do see value in the value sector.