12/14/25
S&P 500: 6827
Nasdaq: 23,195
10 Year Treasury: 4.1%
David R. Snyder, CFA
Very high stock market capitalization concentration is also a leading indicator of the end of secular bull markets. Market concentration peaked in 1904, less than two years before the start of a secular bear market in 1906. In 1937 market concentration again peaked and the second part of the secular bear market began that same year. The next peak in market concentration was in 1964, about 18 months before a secular bear market began. Finally market concentration peaked in 2000, the start of another secular bear market. We now have the highest market concentration ever with the top 10 stocks accounting for 38% of the S&P 500. Increasing market concentration is not the trigger for the beginning of a secular bear market, but it does increase the risk at high levels of concentration. It is the peaking of the concentration that is a lead indicator for secular bear markets. That is why investors hoping for a broadening of the stock market should be careful what they wish for.
I thought all of the antirust lawsuits brought against most of the Mag 7 would be the catalyst for a market concentration peaking, but the extremely weak penalties ordered for GOOG’s antitrust violations gives me some doubt. But the bursting of the AI bubble and new competition and changing technology (i.e. replacement of the smartphone) could be the catalysts to end these clear monopolies.
One of the most important indicators for a major bear market and especially for a secular bear market is the increase in margin debt relative to the increase in the S&P 500 on a year over year basis. As of October, margin debt has increased 40% year over year vs. only 18% for the S&P 500. Margin debt growth has only exceeded the increase in the S&P 500 by more than 500 basis points three times in the last 35 years. This occurred in late 1999-2000, spring/summer of 2007 and late 2021, all months away from major bear markets. This may appear to be a small sample but in reality it is not as there are about 32 years when margin debt year over year did not exceed the S&P 500 year over year gains by more than 500 basis points and there was never a bear market more than 20% that followed. Just a way to observe the data in reverse with more data points.
Many investors are using the Netscape analogy to time the end of this secular bull market. Netscape went public in August of 1995 and the bull market ended about four and one half years later. ChatGPT released its AI version in November of 2022. Thus, using the same timeline as Netscape would lead to a major top in May of 2027. Obviously, these are only rough guidelines.
Secular bull markets at the end can go to crazy valuations as in 1999-2000. The biggest gains usually occur at the very end and the biggest losses at the very beginning of the subsequent secular bear market. I have heard some strategists comment that investors can just wait until earnings begin to decline and then exit. It is not so easy. In 1998 during the Asian crisis, many analysts were cutting estimates on some tech stocks that declined as much as 40% or more. That was a false sell signal. Then when earnings really began to deteriorate in the second half of 2000, waiting for the first poor earnings report from Cisco (CSCO 69) meant selling after a 40% decline. So it is very difficult to predict and navigate near the end. But anything goes at the end!
That is why Greenspan was so criticized when he made his “irrational exuberance” speech in December of 1996. The S&P 500 with dividends reinvested compounded at an annual rate of 26.2% over the next three years making Greenspan appear foolish. However, the average returns for 6 to 15 year time frames starting with the same December 1996 starting point were well below average. Even the 20 year total return from 1997 was below the long term average of 10%, coming in at 7.2%. 6 to 20 year time frames are considered long term investment periods. In fact the average total return for the 6 to 15 holding year periods was an annualized 4.9%, well below average. A 15 year Treasury bond purchased at the time of Greenspan’s speech yielded 6.3% and returned more than the 5.3% annual return of the S&P 500 during that 15 year period with much less risk. So yes Greenspan was actually right!
Janet Yellen had a similar experience when she declared that small cap biotech was overvalued in July 2014. A top biotech analyst immediately criticized her analysis as well as most of the investment community. As of today the small cap biotech index (XBI 122) has increased 126% vs. the 315% total return of the S&P 500 with much less risk. Almost all of the XBI’s gains have occurred since April of this year. Again she was proven right over the long term.
Full Disclosure: I own several of the securities mentioned positively. None have been purchased within the last month. The opinions merely represent the opinion of the author as CIO of Journey 1 Advisors, LLC and intended to inform the readers about our investment philosophy and strategy. The contents of this report are based on sources believed to be reliable. It is not intended for circulation. It is not intended to offer investment advice, or to recommend the purchase or sale of any securities or investment product. Investment advice is only given after a client has signed an investment advisory agreement with Journey 1 Advisors, LLC and will be subject to the terms and conditions therein. Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the stock’s expected performance and risk.