One of the most startling features of the current stock bubble? An unquenchable thirst for exposure to mega-cap growth has masked extraordinary weakness in the rest of the market.

In particular, the S&P 490 (S&P 500 ex mega cap growth) is down roughly 15% on the year. The mega-cap growth stocks? These 10 have collectively gained more than 30% year-to-date!

That’s right. 10 stocks have pulled an entire index up from significant losses of -15% to 0%. So much for diversification.

These 10 names primarily represent a love affair with “New Economy” technology. When the hype and severe overvaluation correct themselves, it may drag risk assets down dramatically.

Consider what transpired at the turn of the century. A misplaced belief in all things tech eventually led to -80% top-to-bottom declines for the Nasdaq 100 (QQQ). Perhaps ironically, 2020 investors are nearly as optimistic about the Nasdaq 100 today as they were in 2000.


Consumer weakness. Rising bankruptcies. State shutdowns. Potential for higher corporate taxes. The probability of longer-lasting unemployment. Nothing matters… until it suddenly does.

For instance, banks rely on their ability to charge borrowers more interest than they pay depositors. At the moment, however, higher deposits, rock-bottom interest rates, and anemic loan growth have been eviscerating profit margins.

The result? Investors have not wanted anything to do with bank stocks. Whereas the S&P 500 is roughly flat through mid-July, the KBW Bank Index is still down -35%.

Can a stock market thrive without its financial sector? What about “old economy” stalwarts like industrials and energy?

It is a story as old as time. The “haves” and the “have nots.”

The story will end one of two ways. Either the prosperity of the 10 mega-cap growth standouts will spread to the other 490, or economic gravity will fill the mega-cap stock balloon with lead.

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