A century of historical data offers a sobering message to those concerned about the concentration of technology in the stock market. Goldman Sachs analysis reveals that over the past 100 years, the S&P 500 has consistently continued its upward trajectory in the years following peak market concentration.
What happened: Despite the current record concentration of technology stocks in the market, the S&P 500 has historically continued to rise after these periods, Business Insider reported, citing a note from Goldman Sachs. This trend has been observed in the last century.
Goldman Sachs analysts, led by Ben Snider, pointed out that in the 12 months following previous peaks in market concentration, the S&P 500 has more frequently risen than fallen. This is due to the rise of underperforming stocks as major stocks started to lose momentum, thus boosting the index.
Market concentration is currently at its highest in many decades, with the top 10 stocks accounting for 33% of the S&P 500’s market capitalization and 25% of the index’s earnings. Despite this extreme concentration, the S&P 500 has continued to rise after reaching concentration peaks in five of the seven episodes of intense concentration over the past 100 years.
“Although investors have focused on comparing current markets to those of 1973 and 2000, there have been many other examples of extreme stock market concentration over the past century,” he said.
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Snider noted that today’s market behavior can be compared to the dot-com bubble of 2000 and the Nifty-Fifty bubble of 1973. However, he also highlighted other periods of extreme stock market concentration, such as 1964, when the market bullish remained intact. after market concentration has peaked.
Because matter: Goldman Sachs’ reassurance comes amid growing debate over the state of the market, with some experts expressing concern about a potential tech bubble. However, others, like Douglas Clintonco-founder of Deepwater Asset Management, highlighted the strong performance of some technology stocks, such as NVIDIA Corp NVDAevidence of a healthy market.
Meanwhile, the semiconductor rally has surpassed previous peaks seen during the dot-com bubble era, as noted by Bank of America’s chief investment strategist Michael Hartnett. This surge has raised further questions about the sustainability of current market conditions.
However, not all experts share this optimism. Ken Rogoff, a well-known Harvard economist, warned that the ongoing stock market rally, fueled by the belief that artificial intelligence will remain unregulated, could lead to a bubble. He highlighted potential worker displacement, political instability and distortion of public discourse as significant risks.
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