(San Francisco)

Last week’s nosedive in Facebook shares was nothing short of historic. Twitter followed close on its heels. The big question for investors is whether these flops signal anything about the greater market, or were they just idiosyncratic falls? The answer is that they may. Stocks are very concentrated at the moment, with a small group of tech stocks—the FAANGS—driving the gains. Therefore, losses in that group could drive down the whole market, and even be seen as a bellwether. Today’s concentration is roughly on par with 1999, but differently, all the leaders are in the same sector—tech, making the market more vulnerable. Because tech companies are also the engine for growth, their predicted expansions make up an even larger share of forecasted earnings growth than their current market capitalization.

FINSUM: We see the point of this argument, but we do want to point out one important caveat: the word “tech” itself. We use that term very liberally today. While it is easy to say the concentration is dangerous because all the constituents are “tech”, Amazon, Apple, Facebook, and Netflix are all very different businesses, so perhaps not as intercorrelated as “tech” would indicate.