Another tech bubble in the making? Many signs say yes

31.05.2017 / 10:58

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Тhe technology stocks are pushing the major indexes to new highs. The S&P 500 gained just 0.03 percent on Friday but it was enough to mark the seventh consecutive rise for the leading U.S. stock market benchmark.

That pretty much sums up the market dynamic of late: Small, consistent gains driven by a mere handful of mega-cap tech stocks. You know the names: Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google parent company Alphabet (GOOG).

The focus has become so intense it's sucking the oxygen out of the rest of the market, causing investors to ignore some serious macroeconomic headwinds.

Focusing only on technology is not normal. Keep in mind that only 68% of the S & P 500 shares are in uptrends at the moment against 80% in March.

The scale of the tech surge is just breathtaking. Investor inflows into tech stocks is at a 15-year high. The market cap of many tech giants is greater than the economic output of many large cities.

Тhe combined market cap of Alphabet and Apple is larger than the combined market cap of all Eurozone and Japanese banks.

To be fair, some of this confidence is justified. Earnings growth has been solid and leading economic indicators are perking up, as shown above in the chart from Yardeni Research. The hope/hype cycle remains strong for new products like Apple's iPhone 8 and the Tesla's (TSLA) Model 3 and AMZN's drones.

But has the tech focus and the frothy sentiment that comes with it gone too far?

Last Thursday, 18 percent of the stocks in the S&P 500 hit a new 52-week high, yet 2.4 percent also hit a new low, which is a sky-high number of new lows on a day when so many stocks are reaching new heights. Goepfert notes this has happened at these rates only two other times since 1990, both leading to market losses.

Source: Bloomberg Pro Terminal

Junior Trader Stefan Panteleev

Varchev Traders

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Another tech bubble in the making? Many signs say yes

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