Michael Hartnett, Bank of America’s U.S. equity strategist, is the mastermind behind the now-iconic term Magnificent 7—a group of top-tier tech companies driving the surge in American stock indexes. This elite lineup includes Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc., Nvidia Corp., Meta Platforms Inc., and Tesla Inc.
These stocks soared in 2023 and 2024, but Hartnett now believes the tide has turned. He argues they’ve become exorbitantly priced and, perhaps more critically, overly popular among investors. The factors that once fueled U.S. stocks’ outperformance against global peers—like fiscal stimulus and immigration—are losing steam, he says.
“…Investors have become overexposed to U.S. equities after they attracted record inflows in January,” Hartnett wrote in a recent note. With spending on artificial intelligence nearing its peak, these crowded positions are vulnerable. He also predicts that other tailwinds, such as excessive government spending and immigration, will fade in 2025. “U.S. exceptionalism is now exceptionally expensive and exceptionally well-owned,” he cautioned.
Hartnett has even coined a new phrase, Lagnificent 7, to signal his expectation that these stocks will lag behind the broader market—and especially international peers—in the near future. Instead of chasing pricey, overhyped tech giants, he advises investors to snap up undervalued assets outside the U.S. He’s particularly bullish on European and Japanese banks, which he calls “cheap” and “unloved” amid signs of a global business activity rebound (likely referring to PMI indexes). Other recommendations include commodities, high-yield bonds, and “old economy” stocks like miners.
Hartnett’s optimism about European and Japanese banks stems from their steep discounts. The Euro Stoxx Banks Index remains about 67% below its 2007 peak, while the TOPIX Banks Index is down 74% from its 1989 high. He sees these sectors as poised for a comeback as economic growth picks up.
Among the flood of analyst opinions on stocks, Hartnett’s take resonates most with us. Tech stocks look wildly expensive and have become dangerously popular, especially among retail investors. History shows that retail frenzy rarely ends well—think of the Ark funds (like ARKK) and Zoom (ZM) during the pandemic, or Russian stocks in 2021, when pros grew wary amid Bloomberg reports of looming events while retail clung to hopes of Gazprom dividends.
