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

Game of Trades

16 Aug 202406:15

Summary

TLDRThe 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.

Outlines

00:00

📉 Tech Sector Volatility and Market Concerns

The US technology sector experienced a significant market cap drop from $65 billion to $55 billion within a month, with major companies like Microsoft, Apple, Amazon, and Nvidia being affected. Despite a partial recovery, this volatility is unprecedented since 2022, when tech lost 30% of its value. The sector's performance has fluctuated, with an 80% return over 2023-2024 compared to the S&P 500's 50%. Recent concerns about recessions have led to underperformance in tech stocks, with a 12% drop following trade alerts. The expensive valuation of tech stocks, with a combined PE ratio of 30 compared to the S&P 500's 18.8, raises concerns about potential downturns similar to the late 1990s. Historically, tech stocks have outperformed, but recessions have often led to underperformance, as seen in the 2001 and 2008 downturns. The current market does not yet indicate a recession, with 75% of stocks trending above their 200-day moving average, suggesting a healthy market environment.

05:01

📈 Market Trends and Tech Sector Monitoring

Despite cutting exposure to US tech stocks, the market is closely monitoring the sector for potential trades. Currently, 75% of S&P 500 stocks are trending up, indicating a positive market environment. Historically, when around three-quarters of the market trended higher, it corresponded to a healthy market, as seen in 2007 before the bear market began. The speaker suggests that if this upward trend continues, it's likely that tech stocks will follow suit. Members of the speaker's website receive trade alerts and teachings on financial market profiting and trading decisions across different environments, with transparency on the speaker's own trading decisions.

Mindmap

Keywords

💡Technology Sector

The technology sector refers to the segment of the economy that includes companies involved in the research, development, and distribution of technologically-focused products and services. In the video's context, it highlights the volatility and significant market capitalization changes within this sector, particularly in the US, with companies like Microsoft, Apple, Amazon, and Nvidia being mentioned as examples.

💡Market Cap

Market capitalization, or market cap, is the total market value of a company's outstanding shares of stock. It is used to gauge a company's size and is calculated by multiplying the stock's price by the number of outstanding shares. The video discusses the dramatic fluctuation in the market cap of the US technology sector, noting a drop from $65 billion to $55 billion and subsequent recovery.

💡Volatility

Volatility in finance refers to the degree of variation of a trading price series over time. The video script describes the technology sector as having 'violent moves', indicating large and rapid changes in stock prices, which is a key theme in discussing the unpredictability of the market.

💡Recession

A recession is a period of temporary economic decline during which trade and industrial activity are reduced. The script mentions recessionary concerns as a factor that has shaken the market and potentially contributed to the underperformance of tech stocks, drawing parallels to historical precedents such as the 2001 recession.

💡S&P 500

The S&P 500, or Standard & Poor's 500, is a stock market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States. It is often used as a gauge for the overall U.S. stock market. The video compares the performance of tech stocks to the S&P 500, noting their relative performance during periods of market stress.

💡PE Ratio

The price-to-earnings ratio (PE ratio) is a valuation ratio calculated by dividing a company's market value per share by its earnings per share. It is used to determine if a stock is overvalued or undervalued. The script discusses the PE ratio in the context of tech stocks being more expensive compared to the average stock in the S&P 500, suggesting they may be vulnerable.

💡Outperformance

Outperformance in an investment context means that an asset or investment has performed better than a benchmark or another asset. The video script notes the technology sector's outperformance relative to the S&P 500 in recent years, but also raises concerns about potential future underperformance.

💡Consumer Staples

Consumer staples are products that are essential for consumers and are bought regularly, regardless of economic conditions. In the video, the performance of technology stocks is compared to consumer staples, particularly during recessions, where staples tend to hold up better due to their essential nature.

💡Trade Alerts

Trade alerts are notifications sent to investors regarding potential trading opportunities or changes in market conditions. The script mentions that the speaker's team sent out trade alerts to their members, which led to a further drop in the tech sector, illustrating the impact of such alerts on market sentiment.

💡200-Day Moving Average

The 200-day moving average is a widely used technical indicator in stock trading that smooths out price action by creating a constantly updated average of the security's last 200 days of price activity. The video uses this metric to assess the overall health of the market, noting that a high percentage of stocks above this average typically indicates a positive market environment.

Highlights

US technology sector lost 10 billion dollars within a month.

Large US tech companies like Microsoft, Apple, Amazon, and Nvidia have seen extraordinary returns over the last decades.

The US tech sector dropped from a $65 billion market cap to $55 billion in a month, then recovered half of the losses in 4 days.

These are the most violent moves in the tech sector since 2022, when tech lost 30% of its value over a year.

Tech was the biggest leader in 2023 and 2024 with an 80% return, compared to S&P 500's 50%.

Tech stocks underperformed in July and early August 2024, dropping by 18% while S&P dropped by 9%.

Tech stocks are recovering more aggressively than the S&P 500.

Tech companies make up a large portion of the S&P 500, with the top seven stocks comprising 30% of the index.

The narrator closed most Tech Holdings including Apple, Amazon, and Tesla due to increased odds of further weakness.

The expensive technology sector may face the same fate as the late 1990s tech sector during the 2001 recession.

The Magnificent 8 tech stocks have a combined PE ratio of 30, compared to the S&P 500 average of 18.8.

Tech stocks' PE ratios were much lower in 2012, at about 13, indicating they have become more expensive over time.

Tech stocks have generally outperformed the S&P 500 since 2006, with each dip followed by a recovery.

During recessions, tech stocks underperform due to investors' shift to security and capital preservation.

Technology companies outperformed during the COVID-19 recession due to the nature of the economic downturn.

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

The narrator is closely watching the tech sector for potential trades, with membership providing trade alerts.