MW Why this veteran strategist is dropping his preference for tech stocks after 15 years

By Barbara Kollmeyer

More competition is coming for the 'juicy profit margins' of the 'Magnificent Seven,' says Ed Yardeni

Ed Yardeni says he's no longer overweighting tech stocks and sees more opportunities in financials and healthcare.

As Wall Street looks ahead to 2026, with many investors hoping technology stocks will keep delivering gains, one veteran Wall Street strategist says he's downshifting on tech for the first time in 15 years.

"It no longer makes sense for us to continue recommending overweighting the information technology and communications services sectors in an S&P 500 portfolio, as we have since 2010," Ed Yardeni, the president of Yardeni Research, which offers global investment strategy and asset allocation advice, told clients in Dec. 7 note.

Yardeni said one problem is that his original recommendation has worked so well that those two sectors now make up a record 45.2% chunk of the S&P 500's SPX market capitalization.

"Overweighting these two sectors combined has been justified by their forward earnings share soaring to a record 38.6% of the S&P 500's forward earnings. However, the riskiness of an S&P 500 portfolio has increased along with its concentration in the two sectors," he said.

Yardeni said he's instead recommending market-weighting those two combined sectors and rebalancing by adding overweights in S&P 500 financials and industrials. His firm is also overweighting healthcare XX:SP577, which he notes has been underweighted in both managed and passive investment portfolios.

Healthcare has been garnering more attention this year, with Goldman Sachs and others also flagging the sector's potential. Bank of America strategists are overweighting financials and healthcare along with materials but are keeping tech stocks at market weight, citing concerns over an artificial-intelligence bubble.

The State Street Health Care Select Sector SPDR exchange-traded fund XLV has climbed 14% since late October, while the State Street Financial Select Sector SPDR ETF XLF has mostly held steady since bouncing off April lows and is up 10% for the year. The State Street Industrial Select Sector SPDR ETF XLI has also held on to its April bounce, trading up 17% this year.

Read: Carvana gets a spot in the S&P 500 ahead of these tech stocks

Yardeni's main concern is rising competition for and between the megacap tech companies known as the Magnificent Seven: Alphabet Inc. $(GOOGL)$, Apple Inc. $(AAPL)$, Microsoft Corp. $(MSFT)$, Amazon.com Inc. (AMZN), Meta Platforms Inc. (META), Nvidia Corp. (NVDA) and Tesla Inc. $(TSLA)$. The Roundhill Magnificent Seven ETF MAGS is up 21% year to date.

"We see more competitors coming for the juicy profit margins of the Magnificent 7," Yardeni wrote. "We also expect that the productivity and the profit margins of the Impressive-493 will be boosted by the technologies available to do so, which are sold by the Magnificent-7 and other technology companies. In effect, our spin is that every company is evolving into a technology company."

Also read: Why biotech and drug stocks are rallying even though the rest of the market is hurting

Yardeni also said that the U.S. MSCI stock-price index now accounts for a near record of 65.1% of the All Country World MSCI index. He said they'd been recommending a "stay-home investment strategy since 2010" and this year started to acknowledge that "go global" was beating the U.S.

While the U.S. MSCI is up 16.7%, versus 19.7% for the ACWI ex-U.S. MSCI, several other countries have beaten the U.S. by a larger margin this year, and a weaker dollar has boosted returns for dollar-denominated foreign stock markets. That's as foreign stocks remain cheap on a forward basis compared with the U.S. and as forward earnings of the ACWI ex-U.S. have been holding up this year despite tariff frictions between the U.S. and trading partners.

Read: Firm that called 2025 nearly perfectly - until a moment of doubt - now has highest S&P 500 target on Wall Street

-Barbara Kollmeyer

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December 08, 2025 09:47 ET (14:47 GMT)

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