If you've been watching the market lately, you might have noticed something odd. The big tech names everyone loves to talk about—the so-called "Magnificent Seven"—aren't looking so magnificent anymore. At least that's what Craig Johnson from Piper Sandler thinks.
Appearing on CNBC's Squawk Box, Johnson described the current market as "bullish, but with a lowercase b." That's financial analyst speak for "yes, things are okay, but don't get too excited." He's expecting the market to finish the year up about 5%, which is decent but hardly the stuff of legend. He also warned that we could still see some turbulence, with the market potentially testing lows around 6,100 before year-end.
So what's with the lowercase-b bullishness? Johnson pointed to oil prices hovering near $100 a barrel as a signal that investors aren't convinced the ongoing geopolitical conflicts are ending anytime soon. That uncertainty continues to put a damper on overall market sentiment.
When the Leaders Become the Laggards
Remember the "Mag 7"? That's the nickname for the seven tech and growth giants that have driven so much of the market's performance in recent years: Nvidia Corp (NVDA), Apple Inc. (AAPL), Microsoft Corp (MSFT), Alphabet Inc (GOOGL), Amazon.com Inc (AMZN), Meta Platforms Inc (META), and Tesla Inc (TSLA). These companies have been at the center of the AI revolution and have accounted for a huge chunk of the S&P 500's gains.
But Johnson sees a shift happening. He says these tech behemoths are now propping up the broader market averages while hiding some serious weakness underneath. Here's the concerning part: more than half of the tech sector is down by more than 30% year to date. That meets the technical definition of a bear market.
"Even companies like Nvidia, despite strong earnings and positive commentary, have failed to move higher," Johnson noted. That suggests these stocks might be over-owned or simply losing their momentum mojo. His blunt assessment? The "Mag 7" might be turning into the "lag 7."
Where the Money Is Moving
If big tech isn't where the action is anymore, where should investors be looking? Johnson says market leadership has shifted toward more traditional sectors: energy, basic materials, and utilities. These groups are currently outperforming, and he believes "there's better places to make money down cap"—meaning in smaller companies outside the mega-cap tech universe.
He also dropped an interesting observation about recent market behavior: the gains we've seen have come on low trading volume. That's typically not a great sign. It suggests a lack of strong investor participation and raises the possibility that the market is being driven more by short squeezes (traders covering their bets against stocks) than by fresh money flowing in.
For those wondering what specific stocks might benefit from this rotation, Johnson's sector focus points to some familiar names:
The takeaway here is pretty straightforward: the market's love affair with mega-cap tech might be cooling off. According to Johnson, it's time to look beyond the usual suspects and consider where the money is actually flowing. In a market that's only "bullish with a lowercase b," finding those rotations early could make all the difference.
