Stocks are trading near record highs as investors await a critical wave of big tech earnings, with geopolitical tensions still in focus.
BNN Bloomberg spoke with James Demmert, chief investment officer at Main Street Research, who says strong earnings, improving valuations and the early stage of the AI cycle are supporting further upside.
Key Takeaways
- Magnificent Seven earnings will be a key driver of near-term performance given their outsized weight in the S&P 500.
- Valuations have become more attractive as earnings growth has outpaced stock prices, creating potential entry points.
- Alphabet and Meta are viewed as leading opportunities due to strong growth relative to their earnings multiples.
- Tech is expected to remain the dominant sector, though AI disruption could pressure parts of the software industry.
- International equities, particularly in Europe and Japan, offer lower valuations and improving fundamentals compared with U.S. stocks.
Read the full transcript below:
ANDREW: Markets are near record highs, despite the Strait of Hormuz still closed. And this week, of course, we get a bunch of important reports from Mag Seven companies. Five of them are coming up with their earnings. And as we heard earlier from Michelle Connell, these make up a huge chunk — these Mag Seven companies, or actually just this handful of them, make up about a quarter of the S&P’s market cap.
Let’s get more from James Demmert, chief investment officer at Main Street Research. James, thanks very much indeed for joining us. What will you be looking out for this week, either in Mag Seven earnings or other areas of the markets?
JAMES: A lot going on this week, and those five Mag Seven are going to be very critical to how U.S. markets trade, since, as you just mentioned, they are a big percentage. And we’re going to be looking at the earnings, certainly the profitability, and I know all investors are going to be looking at the capex spending. That’s been an area of concern. A little too much can be spooking investors.
All in all, we think those results are going to be quite robust. And let’s keep in mind, not only the Mag Seven — you’ve got some other infrastructure companies like SanDisk that are going to be reporting, and Amphenol. A lot of good tech here. We think it’s all going to be better than expected, with the backdrop of a market that’s at new highs, but valuations really at 2023 levels.
ANDREW: 2023 levels. What do you mean? You mean that as their profits and cash flow grow, that’s brought the valuation on these stocks down?
JAMES: Yeah, if you go back to, let’s say, four months ago, where the valuations were pretty extreme, what’s happened since then is the earnings for the last couple quarters have been much better than expected, and many of these stocks have traded sideways. So the PEs have gotten compressed to the point where, you know, Nvidia trading at 23 times earnings — we really haven’t seen that since 2023.
And many of these Mag Seven stocks — so where there was once air in the bubble, a lot of that air has been let out. I think that’s a window of opportunity for investors.
ANDREW: I guess Wednesday is really ground zero. We get Microsoft, Meta and Amazon.com. Any of those three stocks — is there something we should remember about them? Any of them really calling to you, for example?
JAMES: Well, I think investors are going to be a little concerned around the Microsoft print and also capex spending there, simply because of the AI destruction of the software industry. We’ll see what comes out there. It is a position we have ownership in. It’s not a large position, but I’m very curious to hear the conference call on that.
I think the best play for the week is going to be the result of Alphabet and Meta. Those are the two companies that we think are sort of head and shoulders above the rest.
ANDREW: Sorry, Meta and who is the other one?
JAMES: Alphabet slash Google.
ANDREW: Right. What in particular draws you to those two?
JAMES: Well, you know, I think that the real basis and theme here is price-earnings ratio relative to growth rates, and we consider that Google, Alphabet and Meta both have what it takes. Meta now reducing capex spending — I think you’re going to see profit margins start to expand over the next few quarters. Same story with Alphabet.
ANDREW: What about the war, the Persian Gulf War? Has it forced you to change, or induced you to change, any of your portfolio weightings?
JAMES: You know, the big decline that we saw with the war really never turned into something more than a normal correction. We were ready to perhaps change some things around. We do use stop losses. None of those really got engaged, and that told us that the market seems to be looking past this oil shock and further out.
So we haven’t made significant changes during all that volatility, except for perhaps reaching out to clients and sometimes on the media and sharing with people — hey, try to be disciplined here. Try not to knee-jerk sell. I don’t know that the market going forward is going to be a lot different than what we saw prior to the oil shock.
We do think tech still leads the way, particularly as the valuations we mentioned. We also think global stocks around the world are much less expensive, particularly in Europe and Japan, where you’ve got rising earnings growth and better economic fundamentals. So we think investors here should be global.
The market seems to be looking past the shock of the closure of the Strait of Hormuz. Now let’s see if we can get that done. And let’s remember we’re in the third year of the business cycle. This could last seven or eight years, so we’re still in the early innings.
ANDREW: When you say in the business cycle, you mean an upcycle for investment, or what do you mean?
JAMES: Yeah, when we speak of the business cycle, we talk about the economic cycle. We really had a shakeout in 2022 with high rates, a bear market and stocks globally. And that sort of gave birth to the new business cycle, which started in 2023.
And average business cycles can last seven, eight, nine years. If they have an AI or a technology innovation, which we had in the ’90s, these business cycles can last quite a long time — six, eight years. Nine years is not unlikely. Again, we’re just in year three.
Valuations are still very reasonable, and not here just in the U.S., but also outside.
ANDREW: We’d better jump. Thank you very much indeed, James.
James Demmert, chief investment officer at Main Street Research.
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This BNN Bloomberg summary and transcript of the April 27, 2026 interview with James Demmert are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
