U.S. tech stocks are actually extra beneficial by market cap than the whole European market.
5 mega-cap tech stocks have helped the S&P 500 outperform all of Europe.
A major market downturn could possibly be within the playing cards as tech stocks are overvalued.
There are a lot of indicators that the U.S. stock market is in a bubble. Right here’s the most important one.
Based on Bank of America, U.S. tech stocks are actually worth extra by market cap than the whole European equities market.
That is the primary time the U.S. tech sector’s market capitalization, at $9.1 trillion, overtakes Europe, which, together with the UK. and Switzerland, which now stands at $8.9 trillion. For reference, the bank mentioned that in 2007, Europe was 4 occasions bigger than U.S. tech stocks.
5 Mega-Cap Stocks Are Fueling the U.S. Stock Market Rally
How’s that doable? The U.S. stock market has change into more and more concentrated in mega-cap stocks.
The highest 5 largest tech stocks (referred to as the FAAMG stocks)–Fb (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Google-owned Alphabet (NASDAQ:GOOGL)–made up 17.5% of the S&P 500 in January.
The shift in the direction of tech stocks throughout the pandemic has pushed that quantity effectively above 20%. Tech big Apple is worth $2 trillion by itself. It’s the primary U.S. firm with a $2 trillion market cap. Apple is worth virtually 1 / 4 of the European stock market. That’s insane.
Apple stock has soared by 67% because the begin of the 12 months. | Chart: Yahoo Finance
Amazon’s rally might be probably the most spectacular of the bunch. The corporate has been a dominant power in e-commerce because the 1990s. The explosion of the cloud computing trade has contributed to its stock skyrocketing over the previous decade. Its share price is about 25 occasions increased than it was ten years in the past. Its market cap is getting nearer to $2 trillion.
Amazon stock has gained 80% year-to-date. | Chart: Yahoo FinanceThe huge tech stocks rally explains why the U.S. stock market has outperformed Europe.
Because the starting of 2010, the S&P 500 has gained practically 200%. The Euro Stoxx 50 has risen by 13.4%, whereas the UK’s FTSE 100 has gained just below 11%, in accordance with CNBC.
The S&P 500 is up greater than 8% year-to-date, whereas the Euro Stoxx 50 and the FTSE 100 are down 12% and 21%, respectively.
The S&P 500 has rebounded a lot quicker than the Euro Stoxx 50 and the FTSE 100. | Chart: Yahoo FinanceThe Tech Bubble Will Finally Pop
The U.S. equities market is constructive for the 12 months due to FAAMG stocks, which have soared greater than 35% year-to-date. The U.S. stock market restoration is an phantasm. Tech stocks are buying and selling at very excessive valuations. Their development might taper within the coming months because the financial system recovers and fewer individuals work from home.
The dominance of tech stocks is unhealthy for markets. Watch the video beneath.
The U.S. stock market is simply too concentrated in tech stocks, and that’s dangerous. The FAAMG performs are forming a mega-bubble, which is able to trigger a big market downturn when the bubble pops. It isn’t regular that solely 5 stocks exceed Europe’s market cap. The Dow might be hit too when the tech bubble pops, because it’s changing into extra concentrated in tech stocks. Tech-heaving Nasdaq will, after all, be the extra hit.
Disclaimer: This text represents the creator’s opinion and shouldn’t be thought-about funding or buying and selling recommendation from CCN.com. The author owns shares of Microsoft.