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Concern for dominance: Goldman Sachs: The stocks of these tech giants have reached the end of the flagpole message


• Dominance of tech giants worrying
• There is no longer much upside potential
• Doubts about the end of the crisis

The multi-billion dollar US technology groups Facebook, Apple, Microsoft, Amazon and Alphabet have shaped the stock markets in recent years. The latest technology rally also has a major impact on the latest recovery rally. While the US leading index Dow Jones is still lagging significantly behind its highs from February, the Nasdaq Composite has almost made up for its losses, the Nasdaq 100 is even up on 2020.

Only a little room for improvement

But the upside potential for the Big 5 is limited, Goldman Sachs analyst David Kostin recently warned. The chief strategist and expert for the US market said in a letter to customers: “The multi-year outperformance of Facebook, Apple, Amazon, Microsoft and Google has led to a record concentration on the stock markets and a narrow market breadth”.

But the chances for the big tech giants to continue to grow are much less than many market participants suspect: “Given the price targets of the Goldman analysts, these five companies have an upside potential of only 3 percent compared to 10 percent for the other 495 companies that make up the S&P 500 index “.

Goldman Sachs analyst warns

But the strong representation of companies in the index could pose a threat to the broad market, warns Kostin, referring to the stock market history. In the past, a sharp reduction in the breadth of the market would have led to large price falls. While this type of market dominance – the five big tech giants make up a fifth of the S&P 500 – could go well for a while, but looking back it becomes clear that this could be a signal for below-average market returns and a possible momentum reversal.

The majority of the shares in the S&P 500 perform significantly worse than the overall index: Facebook, Apple, Amazon, Microsoft and Google with their strong balance sheets, however, falsify this picture. Because the stocks of the big five have already performed quite impressively this year: the S&P 500 has lost more than 11 percent since the start of the year. On the other hand, Apple saw an increase of more than 2 percent in the same period, Amazon won an impressive 26 percent, Microsoft has seen an increase of 15 percent since January, and Google’s parent Alphabet gained around two percent – roughly as much as the Facebook share.

The fact that the S&P 500 did not get any clearer noise is due to the strong market capitalizations of Apple, Amazon & Co., because the previous year’s performance was significantly worse for the majority of the index shares.

Lack of market breadth worries

The Goldman Sachs analyst points out that the recessions from 1990 and 2008, as well as the economic dips in 2011 and 2016, were also preceded by an immediate narrowing of the market. In all cases, the markets had subsequently lost significantly.

The team led by David Kostin doubts whether the market with its Corona-related crash in February has already followed this development and has already seen its lows. Because the development of market leader shares does not match their high valuations and instead indicates an overvaluation.

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Image sources: isak55 /, SAEED KHAN / AFP / Getty Images

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