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Investors should conduct a broader stock screen.
The so-called "Big Seven" in the S&P 500 have dominated headlines and investor thought over the past year amid explosive hype about artificial intelligence and profit growth. But as new narratives emerge in the market — such as rising bond yields and that technology expectations are too high — it might be time to take a look at the other 493 stocks in the S&P Index.
Gargi Chaudhuri, chief investment strategist for the Americas at BlackRock, told Yahoo Finance executive editor Brian Sozzi that these 493 stocks are likely to achieve very solid 11% earnings growth this year (up from 8% growth in 2024), but valuations may not yet reflect it out of this. on his Bid Opening Podcast (video above; listen below).
Mag 7 corporate earnings are expected to grow 18% in 2025, a slowdown from 25% growth in 2024 - a change that many optimistic investors may not have expected.
Chaudhuri said there are good investment opportunities in the financial sector this year.
"Overall, the theme we're talking about in our outlook for the year ahead is quality. It's the intersection of what we call quality and growth and looking at valuation because obviously valuation is very important to investors," Chaudhuri explains.
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As earnings season gets underway, Chaudhuri's conference call may be ahead of the curve.
FactSet estimates that seven industries in the S&P 500 should report fourth-quarter earnings growth, and six of them should post double-digit gains. The financial industry is expected to achieve its highest profit growth of 39.5% this quarter.
"If you look at earnings growth expectations, not just for the fourth quarter but also for the first quarter, we expect the financials sector to see the strongest earnings growth after technology and comparison services," Chaudhuri noted.
Double-digit profit growth will also impact information technology, consumer discretionary, health care, utilities and communications services, FactSet said.
In addition to looking for quality and growth, "we are discussing the concept of growth at a reasonable price," Chaudhuri said. "We focus on companies that have strong, healthy balance sheets, low leverage and are truly capable of repeatable earnings growth."
In some ways, buying the 493 other stocks in the S&P 500 at reasonable valuations might be a defensive trade in the current environment.
The latest jobs report sent stocks on a downward spiral. A slew of headlines detailed how the Dow Jones Industrial Average fell nearly 700 points as cautious investors reacted to the possibility of fewer interest rate cuts from the Federal Reserve.