20-Year High Bullish Sentiment Meets Record Tech Allocation: Recipe for Disaster?
Last week, major US stock indexes experienced a slight decline, marking only the second negative week in the past 16.
If that was all, everything would appear normal. However, bullish sentiment continues to surge at exceptionally high levels, reaching its highest point in 20 years.
Source: Hi Mount Research
This sentiment arises from the increasing frequency of new all-time highs in comparison to 2022 and 2023, where the markets saw just one high each year.
In 2024 alone, there have been 11 new highs already, contributing to the rising FOMO, especially evident in tech stocks.
The allocation to tech is at its highest level since August 2020.
To be more specific, let's focus on six stocks in the S&P 500, each boasting stellar valuations that might seem almost hard to fathom
An article by Bank of America pointed out that Nvidia alone is worth more than the entire Chinese stock market.
This means that Google, Amazon, Apple, and Microsoft are all larger than many stock markets, increasing their allocation in the S&P 500 index.
This implies that the top 10 holdings represent one-third of the index, and when we broaden our perspective to include the top 25 holdings, they collectively account for 46 percent of the entire index.
The Magnificent 7's combined annual profits surpass those of stocks listed in all countries except China and Japan.
This might not seem normal but this is evident in other markets as well. Take China for example.
The top 10 stocks constitute over 57 percent of the index, and the top 5 represent almost 38 percent of the market capitalization.
It's important to acknowledge that these high concentrations can be risky and markets can eventually experience a deep correction. Many might find it hard to admit,
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