(San Francisco)

No matter how good you may feel about stock indexes being back near all-time highs, one fact cannot be ignored: the market seems to be heavily overweight on the five largest tech stocks— Microsoft, Facebook, Google, Apple, and Amazon (the new acronym, named by Goldman is FAAMG). These stocks have been powering the market, but the whole situation feels like past peaks where their outperformance could not go on forever. Concentration in the S&P 500 is now at its highest in decades, with those five names accounting for 22% of the total capitalization, up from just 16% a year ago. According to Barron’s “Simple arithmetic limits the continued outperformance of the biggest names, the Goldman team observes, because many portfolio managers have 5% limits on holdings of any given stock. The strategists’ analysis shows that the average large-cap mutual fund already has a 5% position in Microsoft and about 4% positions in the other big four names.”.

FINSUM: It seems these stocks are reaching their institutional allocation limits, which mans retail needs to power them higher. The whole situation feels ripe for a correction.