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Morgan Stanley: "Give up" large-cap tech and mid-cap stocks, and the S&P 500 value index is also "very fragrant"

AInvestWednesday, Aug 14, 2024 11:10 pm ET
1min read

Bank of America says investors should put large tech stocks and small caps on the side and consider investing in the S&P 500 index. Savita Subramanian, head of U.S. equities and quantitative strategy at the bank, said in a note Wednesday that a key reason investors are seeking to diversify beyond large caps is to consider the S&P 500 index.

Growth in earnings is one. The remaining 493 stocks in the S&P 500 index are expected to post an 8% increase in earnings in the second quarter, up from the 7% decline in the fourth quarter of last year, according to Subramanian.

But she said small-cap stocks tracked by the Russell 2000 index are in a profit slump that has persisted since the fourth quarter of 2022. Earnings for the S&P 600 index are down 11% year-over-year so far this quarter.

Meanwhile, Subramanian said while large caps have dominated recent market rallies, the trading price of the S&P 500 index is “significantly cheaper” than the S&P 500 index, approaching “tech bubble” levels.

“The S&P 500 is 8% more expensive than the Russell 2000, and historically that’s been 1%,” she said, adding that “don’t forget about risk, and given the current equity risk premium, the equal-weight S&P 500 should have a 12% premium to the S&P 500 in other conditions.”

The iShares S&P 500 Equal-Weight ETF has $53.4bn in assets and is up more than 6% since the start of the year.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.