Tech Dominance and Portfolio Balancing Challenges
Investors striving for a balanced portfolio in 2024 face significant hurdles as tech stocks continue their stronghold on the market. Dan Eye, Chief Investment Officer at Fort Pitt Capital Group, which manages $5.3 billion, provides a nuanced perspective on the current investment climate. Eye, a former JPMorgan portfolio manager, anticipated a shift away from high-growth tech stocks at the end of 2023. However, this shift has not materialized as expected.
“The Magnificent Seven has kind of scaled down to the terrific two, with Nvidia (NVDA) accounting for roughly 35% of the S&P 500’s year-to-date returns. It’s a tough environment for balanced and diversified portfolios,” Eye remarked.
While Fort Pitt Capital Group holds five of the largest tech names, they have excluded Tesla (TSLA) and Nvidia, the latter being sold too early following its 2022/2023 rebound. Nonetheless, Eye’s decision to maintain a short duration on the fixed-income side has significantly benefited portfolios over the past three years amid persistently high interest rates.
Value and Growth: A Balanced Approach
Fort Pitt Capital Group employs a barbell strategy, balancing value and growth stocks. They are increasingly focusing on “growth at a reasonable price” stocks, identifying undervalued opportunities in the current market. Healthcare stands out as the firm’s most significant overweight in core stock strategies, reflecting perceived value in the pharmaceutical sector, medical technology, and health insurers.
Eye highlights UnitedHealth (UNH) as a prime example. Despite an 8% decline this year due to investor concerns over increased premium payouts, Eye is optimistic. He believes this issue will normalize as pandemic-related healthcare catch-ups decline. UnitedHealth, which has consistently grown its earnings at a mid-teens rate over the past decade, offers a compelling growth narrative at a value multiple. The demographic trend of 10,000 baby boomers turning 65 daily also provides a strong tailwind.
Tech Sector Highlights
Switching to tech holdings, Eye points to Oracle (ORCL), which recently provided positive guidance and announced a cloud deal with Google (GOOGL). “The management team has never been more bullish on their future prospects,” he noted, emphasizing Oracle’s expansion in the cloud space. With massive data centers under construction, Oracle’s revenue growth is contingent on the ramp-up time of these facilities. Eye believes Oracle, as the fourth-largest player in the cloud market, has significant growth potential, devoid of the valuation concerns plaguing Nvidia and other high-profile chip stocks.
Agricultural Sector Insights
In the agricultural sector, Deere (DE) presents a cyclical opportunity. Despite announcing layoffs and lowering earnings guidance in May, Eye recalls Deere’s strong performance in 2022 when high crop prices and farm incomes allowed for price hikes. He emphasizes that investors must recognize Deere’s cyclical nature. The current down cycle is expected to be less severe than previous ones, thanks to technological advancements such as autonomous driving and customized seed and spray solutions.
“This is where you want to be buying in these cyclical businesses…at the bottom of the cycle, and I think we’re pretty close to that,” Eye asserted.
Broad Market Themes
Eye observes a broader theme encompassing UnitedHealth, Oracle, and Deere: the overlooked potential in high-quality stocks outside the AI spotlight. He believes many sectors and companies have been neglected due to the singular focus on AI, creating opportunities in fundamentally sound businesses. Eye also notes that AI technology can enhance efficiencies and margins across various industries, though this potential is currently underappreciated by the market.
Market Movements and Economic Indicators
As of the latest trading session, the S&P 500 (SPX) and Nasdaq (COMP) are showing modest gains, with Treasury yields (BX
, BX
) rising following economic data releases. The U.S. dollar (DXY) has strengthened after the Swiss National Bank cut rates by 25 basis points, while the Bank of England maintained its key rates.
Noteworthy Developments and Tickers
Recent market movements include:
- Weekly jobless claims falling to 238,000, though remaining near a 10-month high.
- The Philly Fed manufacturing survey showing minimal growth in June.
- Housing starts hitting a four-year low.
Significant stock movements include:
- Trump Media & Technology (DJT) shares dropping 8% due to SEC-related supply concerns.
- Accenture (ACN) shares rising 7% following strong generative AI bookings.
- Dell (DELL) shares increasing by over 4% on news of an “AI factory” partnership with xAI.
Conclusion
Investors face a complex landscape in 2024, balancing the dominance of tech stocks with opportunities in undervalued sectors like healthcare, tech, and agriculture. Fort Pitt Capital Group’s strategic insights underscore the importance of a diversified approach, emphasizing value and growth at reasonable prices. As market dynamics evolve, vigilant portfolio management and a focus on overlooked opportunities remain crucial for navigating the year ahead.