Tech stocks good, value stocks bad. That’s the market outlook right now.
In fact, it's been the market outlook for over a decade now and the trend shows no sign of slowing down. Value stocks relative to growth stocks recently fell to 20-year lows, according to Deutsche Bank.
In contrast, the NYSE Fang+ index, which consists of 10 high-profile tech stocks, has hit new record highs relative to the S&P 500. It has more than quadrupled since its 2014 launch, beating the S&P 500 by more than 150 per cent over that period. The problem with this is that investors are increasingly reliant on a small number of tech stocks – Microsoft, Apple, Amazon, Google and Facebook now account for 20 per cent of the S&P 500 – to keep indices afloat.
Goldman Sachs recently noted that, although the S&P 500 is only 17 per cent off its peak, the median stock is 28 per cent below its peak. Sharp declines in market breadth have often signalled trouble in the past, says Goldman, with breadth narrowing during the 2011 and 2016 corrections and also prior to bear markets in 2008, 2000 and 1990.
The S&P 500 is an increasingly top-heavy index, with institutional investors crowding into a small basket of top performers from the same sector – a worrying pattern that poses risks for all investors, not just buyers of technology stocks.
