Chris’ note: Tech stocks are on a tear this year. That’s largely down to the frenzy over AI. But as I warned you yesterday, it’s important to approach this sector with caution due to extreme valuations.
I’m not the only one sounding the alarm. So is master trader Jeff Clark. He’s spotted a disturbing parallel between the 2023 tech rally and the dot-com bubble that blew up in the early 2000s. And he’s urging folks to not to chase these stocks higher.
Jeff predicted the stock market crashes in 2008, 2020, and 2022. And last year, during the worst bear market in 15 years, he gave his readers the chance to double their money 13 times.
So even if you don’t agree with his call on tech, it’s worth hearing him out…
Tech stocks are on fire.
Of course, you know that. Everybody is talking about it.
All you hear about on CNBC is how Microsoft, Apple, and Nvidia have been screaming higher… leaving the rest of the market behind.
You’ll hear about how handful of tech stocks are responsible for all the gains in the S&P 500 this year. You’ll also hear about how you need to own these stocks or be left behind.
What folks in the mainstream won’t tell you is the train has already left the station.
As I’ll show you today, that means it’s too late to chase these stocks now.
Extreme Move
It’s all in this chart.
It looks at the Technology Select Sector Fund (XLK) relative to the S&P 500. This tells us how the tech sector is performing relative to the S&P 500.
When the line on the chart is going down, the tech sector is lagging the S&P 500. When the chart is moving higher, tech stocks are outperforming it.
You can see how strong tech has been compared with the broad market this year. What you can’t see is how extreme this move has been.
But you can see it clearly in this 25-year chart…
Relative to the S&P 500, tech hasn’t been this expensive since the peak of the dot-com bubble in 2000.
Of course, tech bulls will point to artificial intelligence (AI) as the hot new thing that means valuations don’t matter.
And we can pretend the same thing.
But whatever you say about it, one thing is clear. Buying tech stocks today means buying them at historically extreme levels.
And as folks found out in 2000 when the dot-com bubble burst, that doesn’t end well.
Chasing these stocks higher is like chasing a train that’s already left the station. You’re not going to catch it.
There’ll be plenty of opportunities to trade this market. But tech stocks at these levels don’t make sense.
Best regards and good trading,
Jeff Clark
Editor, Market Minute