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The S&P 500 hit a record high this week of 4850 points. And it may continue moving even higher. 😀
But this doesn’t mean the overall stock market is doing well. In fact the Russell 2000, which is a more inclusive index of US stocks, is still down about 15% from its all time high back in late 2021.
This is because the technology sector has significantly outperformed lately. Since the S&P 500 is overly exposed to tech stocks, it has done extremely well compared to the rest of the market.
Here’s a graph of the S&P 500 performance by sector. Tech clearly stands out above the rest.
The AI rally has benefited a lot of investors who hold QQQ or other Nasdaq based ETFs.
But now tech stocks appear to be overvalued. Some charts are looking rather precarious. Here’s a 10-year weekly stock chart of Nvidia for example.
I don’t know when this uptrend will end, but I’m pretty sure that when it does there will be a sizeable correction because that seems be how these stocks behave.
Stocks are future looking and as of now these tech stocks are pricing in massive growth going into the next decade.
AI supplier and GPU maker Nvidia has essentially priced in a world that looks like this.
But I don’t believe we’ll live in a technological utopia any time soon.
Companies cannot grow their profits at insane rates every year indefinitely. At some point growth will slow. So when things start to turn, it might be a good idea for tech investors to rotate into some value stocks or alternatives.
I’m not suggesting to get out of tech stocks entirely. But rebalancing a portfolio is typically rewarded over time when it comes to the stock market. 🙂
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Random Useless Fact:
Most people can’t find the third dog in this photo.
Contents from freedom 35 blog. (www.freedomthirtyfiveblog.com)
