One of Bay Street’s most prominent bears says the outsized weight of some of the U.S. tech titans is in part to blame for the weak showing in North American equity markets heading into the Labour Day long weekend.
David Rosenberg, chief economist and strategist at Rosenberg Research & Associates, said the heavy concentration of high-flying tech stocks in major index weightings was a major factor in the broad-market declines in an interview on BNN Bloomberg on Friday.
“It’s the most lopsided, concentrated, market of all time. So, this is what happens when you get a handful of mega stocks driving things on the upside. God forbid, if they have a minor correction on the downside, it has an overwhelming impact on the market averages, and that’s what the story’s been,” he said.
Due to their run-ups in recent years, Apple Inc., Microsoft Corp., Amazon.com Inc., Facebook Inc. and Alphabet Inc. are now the five-largest weightings on the broad-market S&P 500. Shares of all five companies were down between five and seven per cent over the course of Thursday and Friday.
Rosenberg warned that heavy concentration threatens to broadside retail investors who may have bought index funds in a bid to keep their portfolios well-diversified.
“The bubble this time is just in mega-cap stocks,” he said. “So, the problem from an index point of view is that we could actually do fine as a value investor if you’re in value stocks but the rotation is not going to be strong enough to prevent the growth area, when it rolls over, from stopping the overall indices from actually going into a correction mode.”
“I’d say it’s a healthy rotation, but if you’re an index investor, you’re probably still going to get hurt.”
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