BCA Research says the rise and fall of Nifty Fifty stocks in the 1970s served as a warning to investors keen on the Seven. The Nifty Fifty refers to a loose group of stocks including Coca-Cola, IBM, Xerox, and Pfizer that rose to prominence in the bull market of 1970 to 1973. BCA Research recently compiled a basket of 26 such stocks and found that they generated an annualized return of 64% over that period, then plummeted 61% in the subsequent 1973-1974 bear market. “The Big Seven may not be the reincarnation of the Nifty Fifty, but investors can learn from past manias and panics,” wrote Doug Peta, BCA’s chief U.S. investment strategist. He called the trend “a cautionary tale of groupthink.” ”. BCA’s comments come as seven stocks continue to push the market to new heights despite a slight pullback this summer. The surge stems from continued bets around growth stocks and artificial intelligence themes, especially as the Federal Reserve begins cutting interest rates. Nvidia has outperformed the group, surging 147% year to date. NVDA YTD 2024-present Peta said there are many differences between the Nifty Fifty and the Magnificent Seven, including the long track record of big tech companies outperforming the market. Peta said that while the phenomenon of the 1970s may not be an “accurate blueprint” for the future, concerns have emerged, including rising profit growth expectations and valuations reaching new highs. That, combined with challenges surrounding regulatory scrutiny and index weighting, could create a dark environment for these big tech stocks, he added. “While we don’t know whether it applies to the Big Seven now or in the future, it certainly applied to the early seventies, when too many investors became overly enamored with a small group of growth stocks and their future earnings prospects,” Peta said. Given this situation and expectations of an “imminent” recession, the company recommends a defensive investment stance. “However, whatever our views on the business cycle, the history of Nifty Fifty suggests that investors may benefit from considering how long the outperformance of investment leaders will persist post-crisis amid significant shifts in the monetary and fiscal policy context. .
