"Invest in Profitable Healthcare and Materials in the US Stock Market in the Second Half"

"Big Tech Profit Growth Continues but Slows Down"

As big tech companies lead the U.S. stock market, Bloomberg reported on the 9th (local time) that to secure profitability in the second half of the year, investors need to look at sectors other than big tech, such as materials and healthcare.

Case Lerner, Co-Chief Investment Officer (CIO) of Truist Advisory Services, said, "To achieve similar market returns in the second half, it is necessary to broaden the scope of investments."

[Image source=Reuters Yonhap News]

Bloomberg expects the stock price growth of big tech to sharply slow down in the second half. Although earnings grew by 50% in the first quarter of this year, it is forecasted to increase by only 19% in the fourth quarter. In contrast, materials and healthcare sectors, which fell by 20% and 25% respectively in the first quarter, are expected to see earnings rise by 23% and 24% in the fourth quarter.

Ohseong Kwon, Equity and Quantitative Strategist at Bank of America (BOA), said, "Energy, materials, consumer discretionary, industrials, and financial sectors are becoming interesting," adding, "I believe these cyclical sectors will perform better in the second half."

Such movements are already appearing in the market. BOA clients withdrew about $2.2 billion (approximately 3.0356 trillion KRW) from technology stocks in the last week of May, the second-largest amount since 2008. The sector that saw the largest inflow of client funds was consumer discretionary.

Michael Kasper, Equity Strategist at Bloomberg Intelligence, stated, "Consumer discretionary has traditionally been a major driver of S&P 500 earnings and a cushion during downturns."

Bloomberg clarified that this does not mean investors should stop investing in big tech.

This year, the S&P 500 rose by 12%, with half of that growth coming from five big tech companies: Microsoft (MS), Apple, Nvidia, Alphabet, and Amazon. Riding the AI boom, they have increased their combined market capitalization by $2.9 trillion (approximately 4001 trillion KRW). As a result, the IT sector accounts for 31% of the S&P 500.

Bloomberg said, "The growth of tech companies is not over yet; only the pace of profit expansion is slowing down." According to Bloomberg Intelligence, the five big tech companies recorded stock price increases of over 44% for three consecutive quarters, then dropped to 29% in the second quarter, and are expected to record growth in the 10% range in the second half.

Lerner CIO said, "I still believe big tech will perform well, but at a more subdued level," adding, "Investors will continue to invest in big tech companies with excellent quality, strong cash flow, and substantial cash on their balance sheets."

Expecting stock price increases in sectors other than technology has the downside of high uncertainty. For example, consumer discretionary is led by a few companies such as Amazon and Home Depot.

Bloomberg said, "The success of the stock market this year may directly or indirectly depend on big tech," adding, "As AI is expected to impact numerous industries, technological developments are likely to spread to other parts of the economy, potentially boosting those stocks."