Is an unbalanced Stock market dangerous? CNBC writes that big tech has provided a third of the gains in the US market this year.
Large-cap tech stocks have been the stalwart of the U.S. equity market this year, but other stocks need to pick up some slack to keep the good times rolling.
Approximately a third of the stock market’s gains this year have come from just five stocks as of last week: Apple, Amazon, Facebook, Microsoft and Alphabet Class A shares, according to data from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. On Tuesday, Amazon broke above the major milestone of $1,000 a share for the first time.
Certainly the big tech rally is a good thing for folks who hold Apple, Amazon, Facebook Microsoft or Alphabet stocks. But does the wealth buildup in a few stocks distort the market? When traders make money in the run up of one sector they often take profits and buy elsewhere. Where will the money go next? Financials may benefit as the Fed raises rates. Or will money head for Europe where stocks are looking good? What happens if you are in an ETF that tracks the S&P 500? If Amazon and others are really overbought there could be a huge correction wiping out a substantial part of your portfolio.
Where Is the Smart Money Going?
Is the market unbalanced and ready for a correction? If so the smart money should already be moving to less risky vehicles. WealthManagement.com has an interesting take on investing and risk appetite as it applies to an upside for stocks.
With a breakout from more than three months of consolidation, equities seemed to have re-established some upward momentum.
But there’s still a nagging decline in risk appetite readings. The red line in the chart above tells us that participation in the S&P 500’s record high last week was narrow.
The writer’s risk gauge is the spread in share price between the SPY and OEF. SPY tracks the S&P 500 while OEF tracks the 100 most liquid and highly capitalized members of the S&P 500. As of this writing SPY shares sell for $241.50. OEF shares sell for $106.98. Long term investors consider the OEF a safer bet than the SPY and are willing to accept a lower share price. The writer says that when the spread reaches $140 it will signal are pending market correction.
How About Small Tech?
Investors have piled into big tech stocks because they appear to be winners but where will the growth be next? Market Watch wonders about the next tech stars.
The chief market technician believes small-cap technology stocks, which have lagged behind big-caps across most sectors on a year-to-date basis, are about to have their moment.
“We think small-cap tech is ready to break out, and it could exhibit some relative outperformance vs. large-caps as well,” he said.
Suggestions are OSI Systems, Itron, Semtech and Viavi Solutions. In an unbalanced market it may be a good idea to take some of our profits from big tech an buy small tech, financials or anyone else who may benefit in a market correction.
