📈This Time It's Different

One of the largest misconceptions about the stock market is that something new has arisen that makes the old metrics obsolete. In 2000 it was the internet wave, 2008 mortgages, 2022 the Fed printing money. All of these scenarios have one thing in common. Standards about the deployment of capital were lowered. During the internet days anyone with a website could get a meeting with a venture capital company. In the Great Financial Crisis homeowners could get a mortgage without having income. 2022 the Fed was buying bonds in the open market even though the economy was on fire. It all leads to the same outcome. The concentration of capital into a particular sector is that outcome.

Morgan Stanley has a piece in their 2023 Outlook to institutional clients. In that piece they show the similarities to 2000 dot com bust. The piece is titled:

“What About Those Mega Tech Stocks?

At their peak in 2000, the five largest tech-related stocks comprised just over 20% of the S&P 500.

Those same stocks bottomed five years later, dropping to only 5% of the S&P 500.

At their peak in 2022, the five largest tech stocks comprised roughly 25% of the index.

Are they now headed to 5%?

On one hand, the 30 times average valuations of the five largest tech stocks today will never reach the triple-digit valuations of 2000.

But what has historically stunted the growth of the mega S&P 500 stocks is the U.S. government’s desire to abate their dominance—and we are now seeing that with increased regulatory scrutiny.

Bolt-on acquisitions have boosted megasized companies’ sales growth, averaging roughly 100/year during the 2010s. Year-to-date, however, only 22 acquisitions have been completed.

We believe slowing growth rates combined with premium valuations will allow the S&P equal weighted to continue to outperform the S&P 500 cap-weighted.

We are reducing our exposure to these megacap stocks for these reasons.”

Looking at 2000 only three of the top five tech companies that made 20% are still around. They are CSCO , INTC ,MSFT.

Below is CSCO (orange) INTC(white) SP500(green) MSFT (blue). During this time we saw GDP contract in 2001 and then in 2002 we saw earnings revisions. By mid 2002 SPY was outperforming every single one of them.

Only one stock ever outperformed the SP500 again and it took 17 years. In 2017 MSFT surpassed the SP500.

In 2022 the top stocks are AAPL(purple) MSFT(blue) (GOOG,GOOGL (dark blue) AMZN(orange)NVDA(white) SP500(green)

If Morgan is correct in their assumption of the comparison to 2000 the top 5 have a long way down.

To learn more of the top 4 trends from top investment banks in 2023 watch the video below.

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Wishing Everyone Massive Success in 2023 🍾