Tech-Heavy Stock Market Still Has Room To Run, Says Goldman Sachs' 100-Year Analysis

A century’s worth of historical data offers a reassuring message to those concerned about technology concentration in the stock market. Goldman Sachs analysis reveals that over the past 100 years, the S&P 500 has consistently continued its upward trajectory in the year following the peak of market concentration.

What Happened: Despite the current record-high concentration of tech stocks in the market, the S&P 500 has historically continued to rise after these periods, reported Business Insider, citing a note from Goldman Sachs. This trend has been observed over the past century.

Goldman Sachs analysts, led by Ben Snider, pointed out that in the 12 months following previous peaks in market concentration, the S&P 500 has more frequently rallied than declined. This was due to the rise of underperforming stocks when the leading stocks began to lose momentum, thereby boosting the index.

Market concentration is currently at a multi-decade high, with the top 10 stocks accounting for 33% of the S&P 500 market cap and 25% of the index’s earnings. Despite this extreme concentration, the S&P 500 has continued to rally after concentration peaks in five out of the seven intensely concentrated episodes in the last 100 years.

“Although investors have focused on the comparison between today and the markets in 1973 and 2000, there have been several other examples of extreme equity market concentration during the past century,” he said.

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Snider noted that the market’s behavior today has drawn comparisons to the dot-com bubble of 2000 and the Nifty-Fifty bubble of 1973. However, he also highlighted other periods of extreme equity market concentration, such as 1964, when the bull market remained intact after market concentration peaked.

Why It Matters: The reassurance from Goldman Sachs comes amid a growing debate about the state of the market, with some experts expressing concerns about a potential tech bubble. However, others, such as Doug Clinton, co-founder of Deepwater Asset Management, have pointed to the strong performance of certain tech stocks, like NVIDIA Corp NVDA, as evidence of a healthy market.

Meanwhile, the semiconductor rally has surged past previous peaks witnessed during the dot-com bubble era, as observed by Bank of America's chief investment strategist Michael Hartnett. This surge has raised further questions about the sustainability of the current market conditions.

However, not all experts share this optimism. Ken Rogoff, a renowned economist at Harvard, has warned that the ongoing stock market rally, fueled by the belief that AI will remain unregulated, could lead to a bubble. He highlighted the potential displacement of workers, political instability, and the distortion of public discourse as significant risks.

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