Editor's note: Tech stocks are impacting many investors – even if they don't know it... When regular folks start investing, they tend to gravitate toward the trendy stocks. That has been tech companies in recent years. But what these investors don't know is that flow of money is reshaping the overall market... and possibly their retirement accounts. In today's Masters Series, adapted from the June 17 issue of the free Health & Wealth Bulletin e-letter, Retirement Millionaire editor Dr. David "Doc" Eifrig explains how the tech sector could negatively catch your 401(k) by surprise...
I'm Worried About Tech TodayBy Dr. David Eifrig, editor, Retirement Millionaire It's hard to forget how euphoric investors were back in 2021 and 2022. We're reaching those levels again today. Back then, stocks were all anyone could talk about... Folks were stuck at home because of COVID-19 and investing their stimulus checks in the market. Meme stocks were blowing up message boards. And commission-free trading was more accessible than ever. In 2021, retail investors (i.e., nonprofessional) accounted for about 20% of all U.S. stock-trading volume. This was a big change, as institutions had historically dominated trading. That percentage remained elevated in 2022, at nearly 21% of trading volume. Of course, most retail investors chase whatever's hot. At the time, that was software stocks and companies benefiting from the work-from-home boom. Then the market crashed, and retail investors got burned. By the fall of 2022, the tech-heavy Nasdaq Composite Index had fallen from its peak by about 36%. Many individual work-from-home stocks did much worse. Zoom Communications (ZM), for example, plunged more than 80% from its high. As you can see below, retail-trading activity had fallen back to around 18% by the time the bear market was over...
You'll also notice in the chart that retail investors now account for more than 20% of all U.S. trading volume – just like in 2022. These folks are once again a major force behind the market's advance. Their enthusiasm and risk appetite are high.
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 Satellite-Tracking Tech Applied to Stocks Delivered 100% Win Rates in Back Testing Dr. David "Doc" Eifrig once helped build trading algorithms for Goldman Sachs' billion-dollar corporate clients. And for the past several months, he has been studying the algorithm that lets Elon Musk predict and control the paths of 10,600 Starlink satellites at once. Even better, Doc has built that algorithm into a new stock-picking system... with amazing results. In extensive back testing, Doc's breakthrough system delivered big gains such as 1,633% on Nvidia... 2,487% on Palantir Technologies... and even 4,200% on AppLovin. Click this link for more details. |
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And just like last time, they're pouring money into the hottest parts of the market. That's tech and AI... even though these companies are already richly valued. In fact, the S&P 500 Index's tech sector trades for about 11 times sales versus the index's average valuation of less than 4 times sales. We can tell investors are piling into tech based on the amount of cash flowing into tech funds each week. Last month, tech funds saw record inflows. Take a look...
Tech is everything today. It makes up a massive portion of the S&P 500. It's even dominating value funds. The iShares Russell 1000 Value Fund (IWD) now contains a higher percentage of "growth" stocks than traditional "value" stocks...
Historically, a value fund behaved exactly as you would expect... Value stocks typically accounted for a majority of the fund, at 50% to 65% of its total weight. And growth stocks made up little to none of the fund, usually sitting in the single digits. Investors often assume that a value fund buys companies with low price-to-earnings ratios, good dividend yields, and steady, boring business models. However, indexes like the Russell 1000 operate on mathematical rules, not business-model philosophies. When massive tech and growth giants experience a temporary pullback in valuation, a slowdown in earnings growth, or simply become cheaper relative to the broader market, the index's algorithmic rules automatically reclassify portions of them as value. Because these tech giants are so large, even a small allocation to them can outweigh investments in traditional value sectors like financials, energy, and utilities. (The previous chart is a reminder that Wall Street's quantitative definition of value is often completely detached from what a regular investor considers a value stock.) I'll say this again... It's starting to feel a bit like 2021 and 2022. I wouldn't be surprised if tech experiences a major pullback in the coming months. Things are simply getting too hot in the sector. A prime example is Elon Musk's SpaceX (SPCX), which completed the biggest initial public offering ("IPO") in history last month. The company had a nearly $2.7 trillion valuation... even though it's currently unprofitable and lost about $5 billion last year. (Its market cap has since fallen to $1.9 trillion.) It could be only a matter of time before SpaceX joins the S&P 500. If you have money in a 401(k), that's bad news for you. And it means your wealth is at risk. Plan accordingly. Here's to our health, wealth, and a great retirement, Dr. David Eifrig
Editor's note: Most investors are unaware of how markets actually work. That's why Doc has developed a brand-new system that's tailored to tracking market cycles. This revolutionary method pinpoints the patterns of stocks to predict where they're headed – before they move – similar to how SpaceX tracks its Starlink satellites. To learn more about how the market really moves and see this system in action, click here. |
