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Home Themes AI

Is Big Tech Hiding the Real Market Risks? Uncover the Truth

by Team Lumida
June 4, 2024
in AI, Markets
Reading Time: 3 mins read
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Key Takeaways

  1. Big Tech stocks are less affected by rising interest rates, skewing market perceptions.
  2. Smaller stocks suffer more from high rates, causing a significant market divide.
  3. AI excitement drives Big Tech, but smaller companies present potential bargains.

What Happened?

This year, Big Tech stocks like Nvidia, Microsoft, Apple, and Alphabet have surged, driven by excitement about artificial intelligence. The S&P 500, heavily weighted by these giants, is up over 10%, while the equal-weighted S&P 500 has risen less than 5%.

Smaller stocks, reflected in the Russell 2000, barely gained 1.6%. This disparity highlights how Big Tech’s massive cash reserves and strategic refinancing have insulated them from rising interest rates, unlike their smaller counterparts.

Why It Matters?

Big Tech’s dominance masks underlying market fears about the Federal Reserve maintaining higher interest rates. Smaller companies are more sensitive to bond yields, struggling without Big Tech’s financial cushions.

This creates a misleading picture for macro investors who rely on the S&P 500 as an economic barometer. The current valuation disparity is stark: the median stock in the S&P 500 trades at 18 times forward earnings, compared to over 21 times for the tech-heavy index.

What’s Next?

As the Fed hints at prolonged high rates, pressure will mount on the economy’s weaker segments. Economic data has consistently missed forecasts, exacerbating concerns. If rate cuts materialize, smaller stocks, now trading at a median of 15 times forward earnings, could outperform Big Tech.

Investors should watch bond yield movements and Fed decisions closely, as these will significantly impact market dynamics and potential investment opportunities.

Source: Wall Street Journal
Tags: Big TechFederal ReserveInterest RatesS&P 500
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© 2025 Lumida Wealth Management LLC is an SEC registered investment adviser. Privacy Policy. Cookies Policy.
Disclaimer Important Information This site is for informational purposes only. Information presented on this site does not constitute as investment advice.

Lumida Wealth Management LLC (‘Lumida”) is an SEC registered investment adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Lumida's website (referred to herein as the "Website") is limited to the dissemination of general information pertaining to its advisory services, together with access to additional investment-related information, publications, and links. Accordingly, the publication of the Website on the Internet should not be construed by any client and/or prospective client Lumida’s solicitation to effect, or attempt to effect transactions in securities, or the rendering of personalized investment advice for compensation, over the Internet.

Any subsequent, direct communication by Lumida with a prospective client will be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.

‍Lead Capture Forms: By submitting your contact information in the forms on this site, you are not obligated to invest in Lumida's product or services.
‍Address: Lumida Wealth Management, 25 W 39th Street Suite 700, New York, NY 10018