Tech Bubble Déjà Vu?
Executive Summary
- Market Capitalization of 5 largest stocks approaching levels of previous stock market bubbles
- Indications are mixed as to whether a bubble exists, but enough to be on a bubble alert
- Prudence suggests not being overly reliant on the largest firms and Tech stocks in general
- Make sure there is an allocation to various laggard assets, as they could outperform later
For over a decade now, we have witnessed a prolonged cycle in which growth stocks – particularly large technology companies – have significantly outperformed most other U.S. stocks. Additionally, U.S. stocks overall have far outperformed foreign stocks over the same time period. As a result, we are now experiencing one of the largest divergences in performance between these large growth stocks and the rest of the stock market. This has also resulted in the five largest U.S. companies taking a very large share of the entire U.S. stock market, and the global stock market. This is very reminiscent to conditions just prior to the Tech Bubble that burst in 2000. How real or imminent is this risk? Is it time to seek other alternatives?
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