Key insights
- The author argues that the tech sector, represented by XLK, is exhibiting bubble-like characteristics, forming a parabola on charts that resembles the dot-com era. With tech stocks comprising 40% of SPY, a significant correction is deemed likely, especially if the Federal Reserve raises interest rates. This could lead to a prolonged downturn similar to the post-2000 period, suggesting a bearish outlook for US equities if these conditions materialize.
To anyone wondering if the AI / tech bubble is real, open your XLK chart and zoom out. (max time on Robinhood conveniently just happens to go back to January-March 2000 when the dot com bubble popped.)
These are the tech stocks that have now bloated to make up 40% of the current SPY. (Notably the same percentage of SPY that gets violently corrected historically)
This chart is a complete parabola ending in a vertical line. Anyone who thinks this line just continues upward for any meaningfully extended period of time is living in a fantasy. Im not saying there aren’t still some gains to be made, but the laws of physics and reversion to the mean are real.
To all the people who say it won’t matter in 10 years and “just zoom out”, take a look at the length of this dip post-2000 and ask yourself if you have the stomach for that.
I’m not saying we’re at a dot com level bust necessarily, but everyone should be clear eyed about what’s happening. If the fed hikes rates, which is looking increasingly likely, this picture likely changes quickly.