A Wall Street expert says a trend that with a 30-year track record of wrecking expensive stocks is flashing for big tech — and warns investors to brace for a turnaround within months
Stocks that grow to command more than a 4% weight of the S&P 500 have rarely gone on to maintain that status for more than a year since 1990, according to The Leuthold Group.
At first blush, the dominance of these tech companies is not new, particularly to the myriad investors who have reaped their returns. A record 80% ofsay buying US tech stocks is the most crowded trade, according to a recent Bank of America survey — and they are still buying anyway, from the looks of things.
As Segner tells it on a recent company podcast, the club has a narrow entrance and a wide exit: it's extremely difficult for any company to grow that big and enter, but companies typically do not hang in there for very long. Only Microsoft, GE, Cisco, Exxon, Apple, and Amazon have managed to break into the elite club since 1990.
All told, this unprecedented market concentration is bending the norms in a manner that Segner considers unsustainable. That said, he maintains that the risks to these stocks remain palpable. In addition to a reversion to average valuations, big-tech companies risk the wrath of antitrust enforcement, such as the Justice Department's reported plans to file a. New tax laws that crack down on offshore profits and slower demand for cloud computing also pose risks.
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