All eyes are on the stock market rally and Big Tech is carrying most of the weight. Franklin Income Investors CIO Ed Perks joins Yahoo Finance Live to weigh in on what he expects for the market — specifically the Magnificent Seven stocks in the final stretch of 2023 — and what 2024 could look like.

Perks says Big Tech stocks are likely near the top of their range for now after a strong 2023 rally, but sees no immediate troubles, expecting the Magnificent Seven to deliver on high expectations.

Perks, who expects a “rosy scenario” for the US economy, cites tightening credit conditions that could spur volatility and correction risks in 2024.

Click here to watch the full interview on the Yahoo Finance YouTube page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

- What are your estimates for how do you see the Magnificent Seven faring from here?

ED PERKS: Yeah, we think they're really kind of towards the upper end of their range in the near term, so we don't expect a lot of leadership from them. We quite frankly haven't really had it in the second half of this year. It's very much a tale of two halves to us in the equity market.

But with the trajectory of the economy here, our expectations, at least next two to three quarters in particular where we'll continue to see a little bit of a more macro slowdown, a little bit more of an impact from the Fed's higher for longer, the other factors that have contributed to some of the financial tightening that we're seeing. We think it's very much for a time for the Magnificent Seven to once again to deliver on the very high expectations and maybe to grow into a little bit of the valuations that just absolutely surged in 2023.

- And I know you mentioned perhaps a slowdown here but could we be heading into correction territory once the market sort of settles into a lot of the Fed's efforts and the continuing tightening credit conditions will sort of really start showing up more so next year?

ED PERKS: We really are firm believers that a lot of the tightening that happened really didn't hit until very early this year. And then we had a very significant pause in the response to the banking strains we felt in March was actually injecting a lot of liquidity, both from the Fed as well as from the Treasury. By June, July, that started to unwind again. And we resumed this move to restrictive.

And so we think this lagged effect of monetary policy tightening is really hitting the economy now here in these next couple of quarters. So we wouldn't be surprised if the range that's been established once again on something like the S&P 500 because of the Magnificent Seven, we feel like we're maybe at the upper end of that range in the near term, and we could see some renewed volatility.

Our view is that markets really price in pretty close to a Goldilocks scenario right now, whether we look at the equity markets or even turning to the bond market. The expectations for interest rate cuts in 2024 really are focused on look, disinflation is going to continue, the economy will grow but won't fall into a recession, and the labor market will weaken but not overly. So it's a pretty rosy scenario, we think. And any pressure more on the downside, you could see markets react a bit more negatively certainly on the equity market.