Dave Rosenberg had an interesting set of observations in today's Breakfast with Dave.

  • The five largest stocks (Apple, Alphabet, Facebook, Microsoft and Amazon) now comprise nearly one-fifth of the entire S&P 500 market cap.
  • This is the highest concentration since the dotcom bubble peak of 2000.
  • I’m sure the majority don’t realize that for every hundred dollars they are plowing into these [passive ETF index] vehicles, they are putting nearly $20 of that into just five stocks.
  • Just remember, that these stocks can have as much influence on the way down as they did on the way up. And we should also remember that every bubble pops.
  • Once it becomes apparent that these growth companies can’t continue to grow by the multiples of nominal GDP that are currently priced in, the realization will send these stocks into a period of downward momentum that could be accentuated by a herd effect heading to the exits in these heavily populated indexed funds.

Market Caps

  1. Apple (AAPL): $1.4 Trillion
  2. Microsoft (MSFT): $1.4 Trillion
  3. Amazon (AMZN): $1.1 Trillion
  4. Alphabet (GOOG): $1.0 Trillion
  5. Facebook (FB): $0.61 Trillion

What's Cheap?

  • As for the energy stocks, they now comprise a mere 4% share of the S&P 500 market cap. A decade ago, the share stood north of 11%. The only sector trading more inexpensively are the financials ─trading at a 13.2x forward price-to-earnings multiple compared with 18.6x for the overall market.
  • I highly recommend a read of Energy Stocks Might Have Finally Hit Bottom on page 14 of Barron’s.
  • Just look at the dividend yields on some of the bellwethers, ranging from 3% to 7%, and some with price-to-earnings multiples of 10x-12x.

Those points also from Rosenberg.

If we are indeed headed into recession, what's cheap might get a lot cheaper.

But despite all the Greta demands and AOC plans, the need for energy will not go away, nor will it be replaced by wind and solar any time soon.

Greta Demands: Please see All Hail Greta, the Great Carbon Hypocrite

AOC Plans: Please see AOC's Green New Deal Pricetag of $51 to $93 Trillion vs. Cost of Doing Nothing

Mike "Mish" Shedlock