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The Magnificent 7 Flexes Its Muscles Again, as Small Caps Cower

As we see this transitional shift in the market, I'm still optimistic heading into earnings, especially for this biotech pick.
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Strength in the "Magnificent Seven" tech-star names during much of last year covered up underlying weakness. This reversed to some degree in the last couple of months of the year, but the indexes painted a distorted picture of the overall market.

We have a little of that distortion again on Wednesday as the Magnificent Seven names are seeing relative strength, but small caps are negative, and breadth is poor with around 3,700 gainers to 5,100 decliners. Nvidia (NVDA) , Meta (META) , and Amazon (AMZN) are the leaders so far.

Biotechnology had a good run, but the group is seeing some profit-taking today. There also are some struggles in semiconductors outside NVDA.

It isn't terrible action, but it illustrates that the market is going through a transitional phase. The Magnificent Seven names are very easy to buy since they are so liquid, so they often benefit when there is some uncertainty and investors want to park money somewhere.

I remain optimistic about stock picking as we head into earnings season. We have to deal with reports from banks first and then big-cap technology before smaller stocks start to report, so we will have some clues as to the overall market mood.

My top small-cap pick for 2024, Xeris Pharmaceuticals (XERS) , announced today that Amgen (AMGN) has entered into a license agreement for Xeris' Xerijet Technology for use with Tepezza, which is a leading drug for the treatment of thyroid eye disease. XERS will receive up to $75 million in milestone payments as well as royalties and sales-based payments.

This is confirmation of the great value of Xeris' drug delivery technology and bodes well for the company. I am looking to add to my position on dips. The CEO is speaking on Thursday at the JPMorgan Health Conference and should provide further details about the deal.

(AMZN is among the holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells stocks? Learn more now.)

(Please note that due to factors including low market capitalization and/or insufficient public float, we consider XERIS' stock to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)

At the time of publication, DePorre was long NVDA, AMZN, XERS.