RE:The US stock market Jay...as you well know I am on the same page as you regarding concerns about a downturn in asset values and my asset allocation (conservative) and trading patterns (more active trading on a short term basis) reflect this and have been well documented in past posts.
In terms of valuation, another way of looking at the Magnificent is the following...
The overall P/E ratio of the S&P500 is currently about 15 which in itself is not anywhere in bubble range. But if you break it down further, the P/E ratio of the Magnificent 7 is about 35 (again not anything close to the numbers seen in the tech bubble of 1999/2000.
This would suggest that there is nothing to worry about..correct?
Well not so fast!!
If you take the 35 P/E ratio for the 7 and weight it by 30%, it means that the P/E ratio for the other 493 names is in and around 5. This is actually a lower P/E ratio than we have normally seen at the bottom of a cycle.
So what does that mean?
In simple terms it means that the market is is actually pricing most of the names as if we are already in a deep recession. This is not good since, the index chasers as you point out are missing what is actually going on. The key thing here is that the Magnificent 7 have to sell their products to someone to maintain thier profit growth and justify their P/E ratios. If the rest of the economy is in recession mode then this will be likely be a challenge. They are priced for perfection and perfection may be hard to maintain.
When the "tire hits the road" here it will be very messy and like the game "Musical Chairs", you don't want to be the one without a chair.