Market Insights & Analysis from Kramer Capital Research

Big Tech Is Living on Borrowed Time

Everyone on Wall Street now knows that the five biggest companies in Silicon Valley have carried the market in its post-pandemic recovery. Their performance has been astounding.

But when the entire S&P 500 starts revolving around five stocks, experienced investors get nervous. Leadership is scarce. There just aren’t a lot of strong stocks outside the technology sector.

And when any of the five stocks hit a wall, the market as a whole is in a precarious place. We could see a full-fledged correction in the next few weeks.

Statistics Don’t Lie

As I recently warned “Fox Business,” the argument that it’s time to think about selling Big Tech revolves around math, not momentum. (Watch the video.)

Stocks make extreme moves all the time, bending normal market logic and surprising us all. That’s what Big Tech is doing now.

Apple Inc. (NASDAQ:AAPL) is up 71% this year, rallying as though the global economy wasn’t dragging through the deepest disruption we’ve faced in at least a decade. That’s a breathtaking rally under any circumstances.

Amazon.com Inc. (NASDAQ:AMZN) has done even better, soaring 85% through the pandemic and decisively breaking the $1 trillion market-capitalization barrier in the process.

Microsoft Corp. (NASDAQ:MSFT) is up 45%. Facebook Inc. (NASDAQ:FB) is up 43%. And even the laggard, Alphabet Inc. (NASDAQ:GOOG), has given shareholders a 23% gain over the last eight months.

They’ve expanded their aggregate market capitalization by $325 billion in just the past week and over $2.3 trillion year-to-date. Again, it is great stuff.

But every day these stocks keep rallying it strains statistical limits and makes it more probable that we’ll see a reversion to more normal valuations, which is all a “correction” really entails.

I won’t be surprised to see AAPL drop below $400 sooner or later, or $100 after the split. That’s a big dip, and it’s more likely than a run straight up to $600 at this point.

While knocking AAPL out of rally gear would hurt, most of the other Big Tech behemoths are in a similar place right now.

In theory, AMZN could run beyond $3,750 before running out of steam. Statistics suggest that a lurch back below $3,000 is more likely in the near term. We could even see AMZN plunge 30% before finding support.

MSFT looks more sustainable around $210, FB is overextended this far from its $250 support, and even GOOG, the laggard of the pack, will ultimately retest $1,500 before reaching much higher into the stratosphere.

Of course, all these stocks have broken fresh records since I initially raised the red flag. Any really robust rally can run for a shockingly long period of time before the market finally hits the brake.

But no rocket can blast forever. Every day the stocks fly higher brings them closer to the moment when gravity will bring them back to Earth.

Where’s The Leadership?

The question is what happens to the broad market when the rockets start sputtering. These five stocks weigh in at roughly 25% of the S&P 500, and this week alone, they have contributed 40% of the wealth created on Wall Street.

Other stocks are doing well in this economy, but outside technology, health care and a few select consumer products manufacturers, they just aren’t big enough to step in if a trillion-dollar giant falters.

Even global household names like McDonald’s Corp. (NYSE:MCD) and PepsiCo Inc. (NASDAQ:PEP) have yet to cross the $200 billion market-cap line. Unless they suddenly soar 10%, they can’t even fill the hole a 1% AAPL retreat leaves behind.

Collectively, they can do it. That’s how normal markets function. But with 56% of all stocks in the S&P 500 still down so far this year, there still is a lot of dead money weighing institutional portfolios down.

Do the math: Big Tech has created $2.3 trillion in shareholder wealth this year. But the S&P 500 as a whole has only advanced about $1.5 trillion over the pandemic period.

That means a net $800 billion has rotated out of the other 495 stocks on the index. Big Tech has soared. The rest of the economy remains on life support.

When the drag gets too heavy to ignore, Big Tech may not be big enough to save investors who never stray beyond the index funds. My subscribers, however, are doing well.

We keep discovering the truly dynamic companies of tomorrow in GameChangers and IPO Edge, where I’m pleased to say three of our current positions have outperformed the Silicon Valley giants.

And if you’re itching to see the conventional economy get back to work, Value Authority is a great place to park cash and let the dividends flow. Or if you’re more aggressive, 2-Day Trader provides a thrill whether the market rises, falls or simply grinds.

As always, you can hear my latest thoughts on my Millionaire Makers radio show. (Click here for recorded episodes and local stations.)

CANNABIS CORNER: Green Shoots at Last?

It looks like the lingering buzz around GrowGeneration Corp. (NASDAQ:GRWG) is brightening the mood in the broader cannabis group. If this is the start of a larger bull trend, we’re in for some fun.

Right now, of course, the change is very subtle. Last week saw a net $530 million flow out of cannabis stocks despite GRWG and its enormous post-earnings surge.

This week, we’ve seen $11 million flow back into the group. It isn’t much at all, but at least we’re finally moving in the right direction.

And this wave of gains is much more balanced than what we saw right after GRWG sucked all the air out of the industry.

My favorite of the big cannabis distributors, Aphria Inc. (NASDAQ:APHA), leads the way with a 5.8% gain this week. It is narrowly ahead of Canopy Growth Corp. (NYSE:CGC) and Aurora Cannabis Inc. (NYSE:ACB).

I’d rather see three giants move fast on the road to recovery than a single once-obscure stock double in value. This is how big tides turn on Wall Street. You know I’ll be watching.

Which company is at the forefront of “The Final Human Frontier”?
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