- U.S. tech stocks are now more valuable by market cap than the entire European market.
- Five mega-cap tech stocks have helped the S&P 500 outperform all of Europe.
- A significant market downturn could be in the cards as tech stocks are overvalued.
There are many signs that the U.S. stock market is in a bubble. Here’s the biggest one.
According to Bank of America, U.S. tech stocks are now worth more by market cap than the entire European equities market.
This is the first time the U.S. tech sector’s market capitalization, at $9.1 trillion, overtakes Europe, which, including the U.K. and Switzerland, which now stands at $8.9 trillion. For reference, the bank said that in 2007, Europe was four times larger than U.S. tech stocks.
Five Mega-Cap Stocks Are Fueling the U.S. Stock Market Rally
How’s that possible? The U.S. stock market has become increasingly concentrated in mega-cap stocks.
The top five largest tech stocks (called the FAAMG stocks)–Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT), and Google-owned Alphabet (NASDAQ:GOOGL)–made up 17.5% of the S&P 500 in January.
The shift towards tech stocks during the pandemic has pushed that number well above 20%. Tech giant Apple is worth $2 trillion by itself. It’s the first U.S. company with a $2 trillion market cap. Apple is worth almost a quarter of the European stock market. That’s insane.
Amazon’s rally is probably the most impressive of the bunch. The company has been a dominant force in e-commerce since the 1990s. The explosion of the cloud computing industry has contributed to its stock skyrocketing over the past decade. Its share price is about 25 times higher than it was ten years ago. Its market cap is getting closer to $2 trillion.
The massive tech stocks rally explains why the U.S. stock market has outperformed Europe.
Since the beginning of 2010, the S&P 500 has gained nearly 200%. The Euro Stoxx 50 has risen by 13.4%, while the UK’s FTSE 100 has gained just under 11%, according to CNBC.
The S&P 500 is up more than 8% year-to-date, while the Euro Stoxx 50 and the FTSE 100 are down 12% and 21%, respectively.
The Tech Bubble Will Eventually Pop
The U.S. equities market is positive for the year because of FAAMG stocks, which have soared more than 35% year-to-date. The U.S. stock market recovery is an illusion. Tech stocks are trading at very high valuations. Their growth could taper in the coming months as the economy recovers and fewer people work at home.
The dominance of tech stocks is unhealthy for markets. Watch the video below.
The U.S. stock market is too concentrated in tech stocks, and that’s risky. The FAAMG plays are forming a mega-bubble, which will cause a significant market downturn when the bubble pops. It isn’t normal that only five stocks exceed Europe’s market cap. The Dow will be hit too when the tech bubble pops, as it’s becoming more concentrated in tech stocks. Tech-heaving Nasdaq will, of course, be the more hit.
Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The writer owns shares of Microsoft.