Apple recently became the world’s first public company to be valued at more than $1 trillion (£767bn) after its shares closed in New York at a new record high of $207.39; it beat Silicon Valley rivals such as Amazon and Microsoft to become the first to hit the milestone.


Apple shares have jumped by almost a third in the past year and an astonishing 50,000% since the company first listed in 1980; it dwarfs the 2,000% increase for the S&P 500 index over the same period.

However, Jim Paulsen, chief investment strategist at The Leuthold Group recently warned that investors are dangerously overweight in the biggest tech stocks; he sees worrying parallels with the dotcom bubble of the late 1990s, saying: ‘the character is the same where everyone is going into the same, very narrow number of popular names.’

With an increasing number of commentators suggesting that we are coming to the end of this protracted bull run, those buying tech stocks at current valuations are paying a hefty multiple for their earnings.

As in the past when a cycle was running out of puff, tech companies have taken the mantle as glamour stocks; of the world’s ten largest listed companies, six are technology based. Over 20% of the S&P 500’s market cap is accounted for by technology businesses and the broader US whole market index is almost a quarter weighted in technology compared with just 0.9% of the UK market.

‘the character is the same where everyone is going into the same, very narrow number of popular names’

The mega-cap technology stocks known as the FAANG group have delivered price gains far in excess of the S&P 500 Index as a whole in the last five years; Netflix at 1205% and Facebook at 745% have led the charge

Paulsen noted: ‘More and more of the leadership stocks have been the more aggressive, high beta stocks.’ As such fast-growing stocks have become a larger proportion of the index he observed that ‘the S&P 500 has become half as defensive’ as just 11% of its stocks are defensive compared with 22% of the index in March 2009.

Paulsen believes there is a 50/50 chance that the S&P 500 will drop 15% from its current level; less optimistic soothsayers have called stock market plunges of up to 50%.

Technology has been outperforming for many years, but in recent months it has rocketed; with the market caps of so many of these companies already stratospheric, how much longer can they drive market momentum and are we on the cusp of a repeat of 2000? When the dotcom bubble burst, it wiped $5 trillion from the value of overheated tech stocks.

Paulsen did not suggest that investors who are overweight in big tech stocks sell all, or even most, of their holdings, but he did say they might want to take some profits. He also did not indicate that investors should reduce their overall equity allocations, but recommended rotating portfolios toward more defensive stocks, saying, ‘Maybe buy a beat-up consumer staple or a utility or a pharma stock today that no one’s taking a look at, but sells at a lot better value.’

Leave a Reply