A lot of stock are down right now. I have numerous stocks in my portfolio that made new 52 week lows on friday. What is happening to me is clear. Everyone sees these big cap stocks as safety and they don't care about valuation, and they like the momentum they have. But the thing is unlike times of the past to move the MSFT, META, GOOG, NVDA, AAPL, etc, types it needs a ton of money to move them. When you have trillions of market cap stocks it needs a ton of money to move them higher (They are so much bigger than the past), since there is only so much money to go around it pulls out of the other 490 stocks to fund those top 7-10 stocks going higher and higher. Furthermore I Have had more terrible days in the market (Basically when your down in a up 500 index) in the market this year with the 500 index up than perhaps the last 3-5 years combined. Why is that? Becuase often times my watchlists are a sea of red with the 500 index up nicely the top 7-10 stock move the market and when they go up everything else tends to move down as they suck the oxygen out of the rest of the market a lot now. And because it is a market cap weighted index and how heavy these 7-10 stocks are weighted they have a huge affect on how the index moves.
At some point this will reach a climax, because the valuation just keep getting richer and richer while companies in numerous other sectors continue to have the pe's contract. The Funniest thing is everybody love AI, thing is if AI is successful it is gonna in some way help the other 490 companies or most of them be more efficient in the long run, nobody cares right now. They didn't think that all these companies are investing AI because there is a ROI attached to that. But right now these companies are getting thrown out, which the top bunch just keep getting brought because as of right now they are the obvious beneficiaries of AI, but your paying up for it, and lets face it your not in the early innings in demand, your certainly not in the early innings on price on these big caps either, what you are is riding the momentum train. Don't get me wrong these big caps are great companies. But Just remember CSCO earns alot more today than it did in 2000, the stock is still lower though and that at some point will be these stocks. Now to be fair not all of them have the CSCO 2000 valuation of a PE north of 100, and they will continue to grow, so it it is nowhere like that in most cases, but a year like 2022 is coming again to big cap tech soon, of course that might not be too much of a bad thing for the type of stocks most of us invest in. (a) These stocks got beat up going in (b) AI benefits as time goes on will become more apparent to the beneficiaries or customers of AI. (C) Absurdly attractive valuations will win out in the end versus overvalued valuations and overextended stocks. (D) if money isn't being funded to make those top 7-10 rise, that would mean the oxygen would stop being sucked out of the rest of the market letting other stocks rise. That is not to say that these companies won't rise again after that, but there eventually is gonna be a very difficult time for big cap tech, and if that happens what happens to the other 490 won't save the 500 index if those 10 are falling hard. Having said that as the market is going down there will be alot of winners when that happens, because although they won't move an index, they will move themselves. All is just my opinion, and I could always be wrong though.
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