Five charts sounding the alarm for stretched US markets: McGeever
SPY•Five measures show stretched US stocks and bonds: tech and AI stocks make up over 40% of the S&P 500’s market value, the equity risk premium is negative, and 30-year TIPS yields are nearing 3.40%. The article says the indicators raise questions about whether markets are near an inflection point, but a reversal is uncertain.
1. Market concentration
Tech and AI stocks account for over 40% of the S&P 500’s market value, above the dotcom-era peak, and tech’s share exceeds 50% when AI-related companies are included. The article says a turn in AI sentiment could spark a serious correction, while returns on large AI investments could strengthen the rally.
2. Narrow market breadth
The equal-weighted S&P 500 is underperforming the market-cap-weighted index by the widest margin in 24 years, based on the ratio of Invesco’s RSP ETF to SPY. The article attributes the gap almost entirely to strong tech and AI performance.
3. Yields and risk premium
The equity risk premium—the difference between the earnings yield on stocks and the 10-year Treasury yield—is at its lowest level in 24 years and is negative. The yield on 30-year Treasury Inflation-Protected Securities is nearing 3.40%, its highest since 2002, while the term premium is rising sharply.
