Mid-Year Market Update

Fundstrat's Hardika Singh Weighs In

Last week, I was joined by none other than Hardika Singh of Fundstrat for a mid-year market review.

Hardika is an economic strategist at Fundstrat, and her insights are always something I value. Her research is absolutely next level and is usually my first read of the day.

If you don’t know Hardika, her credentials and experience speak for themselves. She previously wrote for Bloomberg and was a markets reporter at WSJ. She is actively studying for her CFA level II exam, as well.

Before we dive into the details of our mid-year review, I highly recommend keeping tabs on Hardika’s work. You can find her insights on X and follow her professional updates on LinkedIn.

To follow our conversation, I have italicized all of Hardika’s commentary and my questions are in bold:

Cliff: I’d love to hear your thoughts about rotation. The Mag 7 trade looks dried up right now.

Hardika: I wrote about the Mag 7 recently, yes, they have been stocks that have just underperformed so massively that it is just astounding at this point. They’ve underperformed even though they’ve spent so much money. And yes, they are cheap right now, but that’s not the only factor that makes them interesting at this moment. Fundstrat head of research, Tom Lee, has rated Magnificent Seven as one of his top picks for the year.

So, I have kept a close eye on them. And the biggest factor that supports the view that Mag 7 may be in a transitional period right now is the fact that AI isn’t in their core thesis. AI is feeding into their core thesis, but it is not the only thing that they’re running on. If you look at the performance of memory stocks in the past month, I think investors are starting to realize that memory and storage names are very volatile.

If seeing a 20% drop in a month makes you nervous, I think you should probably think about diversifying. The Mag 7 could be seen as a “safety trade” given their maturity. Another thing that I’ve kind of noticed is: How cheap they look right now on a forward earnings gap basis. The gap between the Mag 7 and the S&P 500 is the narrowest since early 2023. So at some point, it’s kind of worth asking: Have the prices become cheap enough for you to start buying them?

I don’t particularly see that the Magnificent Seven could go down so much more from here, especially if memory continues to be volatile. But I do think that there needs to be a catalyst for them to do well.

Cliff: Right, that makes sense. And I think that a lot of investors, especially younger investors, may be unaware of what’s going on under the hood of the S&P 500. I think that thus far, year to date, we had a great first half of the year for the S&P 500, yet the Mag 7 lagged throughout and was about flat. What does that mean to you when you see this more broad participation amongst the market, is that a good sign? Is that a sign of a healthy market or is that something that you’re keeping an eye on?

Hardika: It’s a very healthy sign. You never want to have just a handful of stocks leading the market to all-time highs. That is not a sustainable sign. But recently we have seen a greater number of stocks participating from all kinds of things, financials, industrials, and healthcare.

I haven’t been able to figure out an exact reason for why these stocks are doing so well right now other than the fact that this is just a rotation. And again, it goes back to show that investors were in tech for such a long time they sort of forgot about all these other sectors. They were very unloved and then memory started coming down hard, and it sort of forced investors to reckon with the fact that they had built so much exposure to tech, and it wasn’t healthy.

They realized they need to cut down a little bit and rotate into some of the other areas. So, it’s always a good to see that.

What I am concerned about is that these top names are so heavy, you still do need them to rally in order for the S&P 500 to keep pushing through. It’s great that financials and healthcare are doing well and hitting all-time highs, but is it going to push the S&P 500 to 8,000 points? No, they’re a very small weight of the index.

So, I do want to see some of the Mag 7 here start to lead the market again, and the semiconductor names, as well. I think that’s a possibility we’re going to have because if we look at historical data, whenever we’ve seen some such volatile sell offs in semiconductor shares in the next one-month, three-month and six-month periods, they’ve come back with huge gains. This is just historical data. So, I think if you look at that as a sort of a reference, it bodes well for the future.

Cliff: So, this is much different than 2023 in which the S&P 500 was essentially flat outside of being carried by the Mag 7. This is almost the inverse of that. But it’s providing you more comfort in that there’s more participation amongst sectors, smaller companies, and this idea of growth in the S&P 500 is not being driven by just such a small subset.

Hardika: Yes. I think it’s weird because at that time we were all saying, oh my gosh, I wish there were some other stocks leading the market higher. And now it’s, it’s completely flipped right where it’s like can you outperform again? So yeah, they were, they were such big leaders for such a long time, and I think at some point, the trade just got ahead of itself. That’s why we’re seeing a diversified rally now, which is great, but we need larger stocks to participate, as well.

Cliff: Walk me through the economy. I’d love to hear some K-shape inputs so my readers can understand what that is. Because to me, I say to people a lot of times that with this idea of inflation, if you own assets or if you’re earning income that is at least in line or outpacing inflation, inflation can be seen as an inconvenience.

For earners and asset owners, they have a privilege in that they can call inflation an inconvenience versus somebody who has not seen any wage growth. This is almost devastating. Over the last five years, if your wages haven’t kept pace with inflation, you’re feeling that on a monthly basis.

That’s what I think of when I think of the K-shape where it’s almost a tailwind to asset owners, yet it can be devastating to those that aren’t either accumulating assets or keeping their income on pace with inflation. So, for my audience, that’s my indicator as to why it is so important to become asset owners. We want to be participating in markets to any extent we can.

Hardika: 100%. I think time and time again everyone has said stocks are your best bet against inflation, not gold, even though I know young people are fawning over gold at the moment. But it’s not gold, not bonds, it’s only stocks, purely stocks.

And dollar cost averaging obviously is the best way to do it for most of the people who are looking to set it and forget it.

But I think this is one of the most fragile K-shaped economies because the stock market has done so well and that has made the K-shaped economy that much wider and led to this divergence.

If you think about it, the K-shaped economy is basically this divide between higher income and lower income. Let’s start with higher income. The reason why they’re higher income is because stocks have done so well, and they’re feeling emboldened by their stock holdings.

If my company stock goes up 100%, yeah, I’ll get guac with my Chipotle order. Why not? You know. Yeah, I’ll make that a large vanilla latte. I don’t care. I feel emboldened. Emboldened to spend more. But that is not good for the lower income because they are not asset owners, like you said.

So if you look at the data: The top 1% hold 50% of stocks versus the bottom 50% own 1% of stocks. That is a huge divide. That is a very uneven divide. And I think that’s what’s causing lower income to get crushed even more. And as terrible as it to say this, this analysis shows that it doesn’t matter what happens to their spending because as long as stocks can keep going up, the upper part of the K can continue to be strong because it’s masking the weakness at the bottom.

So, it doesn’t matter what happens to the lower income as much as it does to what happens to the top. And there are signs that the stock market can continue to be strong. This still remains a secular bull run. So, I don’t really foresee the upper part of the K falling down anytime soon. That’s the most interesting thing to me. But yes, own stocks. This is the best way to beat inflation. There’s nothing else.

Cliff: That is a great insight to the economy. I could definitely see how this is being propped up by high earners and asset owners. To finish this off, I want to hear what you think the most overhyped financial topic of 2026 has been thus far.

Hardika: I’m going to come out with a hot take and say that the SpaceX hype ain’t it.

I think everybody hyped it up so much and everybody was saying it’s oversubscribed. I think you have to be very careful about what you’re paying for a company. Because what could make SpaceX’s price go up in the near term? It’s not going to be profitable for a very long time. They’ve said this in their S1. They don’t know if they’ll ever become profitable. If a company is boldly proclaiming they’ll never be profitable, as an investor, why would I buy it? I don’t understand.

Yeah, it’s basic investing 101. You should buy companies that are profitable or hoping to become profitable, but SpaceX proudly proclaims they’re not going to be profitable. That’s very worrisome to me.

And also, it’s concerning that we’ve seen such a terrible performance from SpaceX when the lockups haven’t even expired. We have another year to go until the lockups fully expire. So, what happens then? I think this is just a stock that is facing the path most IPOs do in the first year where they have very volatile, poor performance. SpaceX is no different. And I think that means that investors should be careful.

You shouldn’t treat it as a special stock. You shouldn’t apply a special premium to it—the Elon premium— because it’s literally trading like a regular stock.

Cliff: Given the SpaceX IPO and a lot of other mega IPOs slated for 2026, 2027, how would you tell a young investor to navigate the waters of an OpenAI, an Anthropic, any of these other big IPOs that are very, very hyped up and they seem to be a little bit Frothy after watching SpaceX very recently, what would you tell a young investor about these mega IPOs?

Hardika: These are great companies at the end of the day, and that extends to SpaceX, as well. I do think that they are trying to do something that’s never been achieved before. OpenAI is literally a leader in the AI space. We wouldn’t have anything if it wasn’t for them and Anthropic.

But I think these are companies that you have had to get in very, very early on. And most of the people who are buying publicly are buying when most of the value of this company has been made already or a good chunk of it anyway.

I think that if you were an employee at Anthropic and you got stock there and then it goes to market, you are probably having a great time. But I think if you’re buying it publicly on the secondary market, you have to be ready for some volatility and that is a trade you should think about twice before making because we literally haven’t seen any IPO do well in the past year and a half.

Cliff: Interesting. So, you would say to a young investor: “look, if you’re a long term investor, make sure you size it properly, be ready to hold for the long-term and be ready for volatility.” Otherwise, if you’re a little apprehensive or you’re unsure, maybe let these companies mature a little bit as far as being public companies. Maybe get to an earnings call, maybe get to a full year’s worth of earnings calls and see how things look before making a decision. I love that.

Hardika: Yeah, I completely agree. I think people need to be a little bit more prudent here.

Cliff: I think you’re totally right in saying that people should be more prudent and understanding that some of these companies can look more speculative than investment-like.

Huge shoutout to Hardika for sitting with me to go through some of the things she’s keeping her eye on as an economic strategist. Make sure to follow her on LinkedIn for more of her content!

*Hardika Singh is employed by Fundstrat Global Advisors, LLC and her views are solely her opinion. This newsletter does not constitute an endorsement of Fundstrat by Bone Fide Wealth.

Disclosures: https://fsinsight.com/disclosures/hardika-singh/

This is for informational purposes only and is not intended as legal, tax, or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of publication and are subject to change without notice. Past performance is not indicative of future results.