We are at the Precipice of a Major Turning Point for US Stocks…

Summary

The US technology sector experienced a sharp drop in market cap, falling from $65 billion to $55 billion within a month, before recovering half of the losses in just four days. Despite historical outperformance, recent volatility raises questions about the sector's future amid recessionary concerns. Tech stocks, which make up a significant portion of the S&P 500, saw a 12% drop after the author's sell-off alert. With high PE ratios compared to the S&P 500, the sector's vulnerability is highlighted, suggesting a potential downturn similar to the late 1990s. However, the current market trend shows most stocks trending up, indicating a healthy environment that could support tech stocks' recovery.

Takeaways

• 📉 The US technology sector experienced a significant drop in market capitalization, losing $10 billion within a month.
• 📈 Major US tech companies like Microsoft, Apple, Amazon, and Nvidia have had extraordinary returns over the past decades but recently saw a sharp decline and partial recovery.
• 📊 The technology sector had a volatile period with a drop from a record $65 billion to $55 billion in market cap, followed by a half recovery in just four days.
• ⏳ The sector's performance since 2022 has been marked by significant downturns, including a 30% loss in value over a year.
• 🚀 In 2023 and 2024, the tech sector was the biggest leader with an 80% return, outperforming the S&P 500's 50% return.
• 📉 July and early August saw tech stocks underperform significantly with an 18% drop, compared to the S&P 500's 9% drop amid recessionary concerns.
• 🔄 Tech stocks have recovered more aggressively than the S&P 500, raising questions about whether this is a temporary blip or the start of a larger downturn.
• 🏢 The largest seven stocks in the S&P 500 are US tech companies, making up 30% of the index and indicating their significant impact on the market.
• 📊 The video discussed a recent decision to close down most tech holdings due to increased odds of further weakness, which was followed by a 12% drop in the tech sector.
• 💡 The expensive valuations of tech stocks, with a combined PE ratio of 30 compared to the S&P 500's 18.8, make them potentially vulnerable to downturns.
• 📊 Historically, tech stocks have outperformed relative to the S&P 500 since 2006, with each dip being followed by a recovery.
• 🌐 The script suggests that a significant reversal in tech stocks is likely to occur only during an economic downturn, as seen in past recessions.

Q & A

What happened to the US technology sector in terms of market capitalization within a month?

The US technology sector experienced a significant drop in market capitalization, falling from a record $65 billion to $55 billion within a month, before recovering about half of those losses in just 4 days.

Which companies are mentioned as examples of large US technology companies that have seen extraordinary returns over the last couple of decades?

Microsoft, Apple, Amazon, and Nvidia are mentioned as examples of large US technology companies that have seen extraordinary returns.

What was the performance of the technology sector relative to the S&P 500 in 2023 and 2024?

The technology sector was the biggest leader in 2023 and 2024, yielding a staggering 80% return over that time period, while the S&P 500 only returned 50%.

How did the technology sector perform in comparison to the S&P 500 in July and the beginning of August?

The technology sector was a large underperformer, dropping by 18%, while the S&P 500 only dropped 9% due to recessionary concerns shaking the market.

What is the current situation with the largest seven stocks in the S&P 500 in terms of their contribution to the index?

The largest seven stocks in the S&P 500, which are US tech companies, make up 30% of the index.

What was the reason for closing down most of the Tech Holdings including Apple, Amazon, and Tesla as mentioned in the script?

The decision to close down most of the Tech Holdings was based on the belief that the odds of further Tech weakness had increased, as explained in a previous video on their website.

What was the performance of the tech sector after the trade alerts were sent out to members?

Following the trade alerts, the tech sector dropped by another 12% and has yet to recover back to the July 2024 levels.

What is the current PE ratio of the 'Magnificent 8' stocks, and how does it compare to the average stock in the S&P 500?

The 'Magnificent 8' stocks have a combined PE ratio of 30, which is around 50% more expensive than the average stock in the S&P 500, which trades at a PE ratio of 18.8.

How have technology stocks performed relative to the S&P 500 since 2006?

Since 2006, there has been a pretty steady outperformance of tech stocks relative to the S&P 500, with each slight dip being followed by calls for more downside on tech stocks, but the overall trend has been upwards.

What is the general belief regarding the vulnerability of expensive valuations of tech stocks?

Many believe that expensive valuations make these tech stocks very vulnerable to start unwinding down, which could drag the rest of the market with them.

What historical event is often cited as a precedent for tech stocks underperforming, and what was the cause?

The technology sector of the late 1990s is often cited as a precedent, where expensive stocks unwound during the 2001 recession. The cause was the onset of a recession, which led to investors prioritizing security and capital preservation over growth.

What is the current market trend in terms of stocks trending above their 200-day moving average?

Currently, an impressive 75% of stocks are trending above their 200-day moving average, indicating a healthy market environment.

What is the speaker's stance on the potential future performance of technology stocks?

The speaker is cautiously optimistic, stating that while they have reduced exposure to US tech stocks, they are closely watching the sector for potential opportunities to initiate trades.