I’ve been posting about this since last summer, when I started noticing some disturbing trends. First, the stock market valuations are way off. The current P/E ratio of 28.77 is significantly higher than the historical average of 18-19.
More importantly, the distribution of market share is less than it has ever been. Together , “Magnificent 7” stocks have an astounding 33% share of the S&P 500. These 7 tech giants have a combined $16 TRILLION in market value. That is, in my opinion, way too few stocks to hold such a vast market share.
This phenomenon leads to concentration risk, which means that too few stocks account for such high valuations , especially since they’re in the SAME industry instead of a diverse group of industries, which makes the entire market more vulnerable to an economic crisis.
We will get a closer look at this in the coming week, when NVIDIA reports earnings. $NVDA results can swing the entire market wildly in either direction, despite accounting for less than 1% of the nation’s economy.
A FRAGILE SITUATION…
So whether the economic pain comes sooner or later rests with several factors, such as macroeconomic conditions, employment, the health of the banking system, and the speed of negative economic impact from President Trump’s policies. But the biggest factor of them all, general market sentiment, is contingent upon all of these. And, this can be impacted significantly by the moves of a single stock.
REconomix 