We are at the Precipice of a Major Turning Point for US Stocks…
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
📉 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.
📈 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
💡Market Cap
💡Volatility
💡Recession
💡S&P 500
💡PE Ratio
💡Outperformance
💡Consumer Staples
💡Trade Alerts
💡200-Day Moving Average
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.
Transcripts
10 billion dollar were wiped out off the
US technology sector within the space of
a month large US technology companies
have seen absolutely extraordinary
returns over the last couple of decades
companies like Microsoft Apple Amazon
and Nvidia now over the last month we
saw the US tax sector drop from a record
$65 billion in market cap to $55 billion
in market cap only to now recover about
half of those losses in Just 4 days
these are by far the most violent moves
in the technology sector we've seen
since 2022 a period where Tech lost a
total of 30% of its value over the
course of a year the US tax sector went
from being by far the biggest leader in
2023 and 2024 yielding a staggering 80%
return over that time period while the
S&P 500 only returned 50% to being a
large underperformer throughout July and
the beginning of August with tech
dropping by 18% while the S&P only
dropped 9% as we had all of these
recessionary concerns shake the market
and now tech stocks are recovering all
of this weakness much more aggressively
than the S&P 500 so was this period of
underperformance just a blip with tech
stocks now ready to Skyrocket higher
again or is this just the beginning of a
much larger move down in tech stocks
which would very likely drag the entire
S&P 500 lower because these tech
companies actually make up a large
portion of the S&P 500 indeed the
largest seven stocks in the S&P 500 are
US tech companies just these stocks make
up 30% of the index now a couple of
weeks ago we posted this video on our
website called odds of further Tech
weakness has increased and in that video
we explained why we were closing down
most of our Tech Holdings including
Apple Amazon and Tesla these are the
three trade alerts that we sent out to
our members pre-market following these
alerts the tech sector dropped by
another 12% and has yet to recover back
to those July 2024 levels but many
believe that this recovery is going to
be shortlived and that ultimately the
expensive technology sector is Bound for
the same fate as the technology sector
of the late 1990s as these expensive
stocks unwinded down during the 2001
recession after all the Magnificent 8
stocks have a combined PE ratio of 30
today PE ratios are a way to measure how
expensive stocks are when we compare it
to the average stock in the S&P 500
those are trading at a PE ratio of 18.8
so around 50% less than these large cap
tech stocks and by the way these stocks
haven't always been this expensive in
2012 these companies had a PE ratio of
about 13 so many believe that these
expensive valuations make these stocks
very vulnerable to start unwinding down
which of course should drag the rest of
the market along with them but this is
something that people have been trying
to anticipate for decades now and yet
when we look at the performance of the
technology sector relative to the S&P
500 we see there's been a pretty steady
outperformance of tech stocks since 2006
with each slight dip that we've seen
throughout this period people have been
calling for much more downside on tech
stocks but when we zoom out back
throughout a history we see the only
real thing that can lead to a strong
underperformance in technology stocks
are recessions in the 1990s the huge
outperformance of tech stocks was only
stopped when the 2001 recession occurred
recessions leading to Tech
underperformance is something that we've
seen many times throughout history the
only real exception to that was during
Co in 2020 where technology companies
actually outperformed significantly
during that period of course the nature
of the covid recession made it so that
these companies would thrive in that
environment so our base case today is
that a big reversal in technology stocks
will only come when an economic downturn
in the US begins to materialize during
recessions investors switched their
priority from being exposed to a maximum
amount of growth so tech stocks to a
maximum amount of security and
preservation of capital in this
environment companies that are more
expensive like tech stocks decline and
companies that are less economically
sensitive and cheaper like utilities and
Consumer Staples hold up better this
chart right here shows you the
performance of technology stocks
relative to consumer staples and indeed
we see in the 2001 and 2008 recessions
technology stocks were underperforming
Consumer Staples significantly now over
the last couple of weeks we've
definitely seen technology stocks
underperform definitely seen this type
of flight to safety of technology stocks
relative to Consumer Staples but but
overall this chart still looks like it's
trending up this isn't really what was
happening heading into the 2008
financial crisis you can see between
October of 2007 and January of 2008 tech
stocks were violently underperforming
Consumer Staples of course it could be
that this chart rapidly deteriorates but
for now it's much too early to conclude
that the tech sector is going to turn
into a significant underperformer so
we're not really feeling A recessionary
vibe from the market yet in fact there's
currently an impressive 7 5% of stocks
that are trending above their 200 day
moving average so in other words 34 of
US stocks are currently trending up when
we look at what that means going back to
2007 all of the moments throughout
history where around 3/4 of the market
was trending higher corresponded to
pretty healthy Market environment you
can see in the first leg down of the
bare Market in 2007 this chart dipped
below 50% very rapidly showing investors
had growing concerns about the economy
of course it could be that that happens
quite quickly today but as of now the
chart that we have in front of us shows
us that most stocks in the S&P 500 are
trending up and if that environment
continues for a few months it's hard to
imagine the technology stocks won't be
trending higher as well so although as I
mentioned earlier we cut out most of our
exposure to US tech stocks around here
we are closely watching the tech sector
with our members to see if we should be
once again starting to initiate trades
in this area of the market if you're a
member of course you'll receive trade
alerts whenever we make changes to or
allocation make sure to grab yourself a
membership to our website I teach you
everything I know about how to profit
from financial markets and making the
right trading decisions across different
types of environments along with plenty
of transparency regarding our own
trading decisions
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