As discussed at some length in “Magnificent 7: Bubble Or Not?” dot-com redux warnings are pervasive in 2024.

The narrative is straightforward: Market concentration is extreme and valuations for the so-called “Magnificent 7” can only be justified by way of growth estimates that may or may not pan out.

The implication is that the current environment may be analogous to the dot-com bubble in that if growth disappoints, the leadership is vulnerable and thereby so is the entire market.

In the linked article above, I suggested, among other things, that we shouldn’t lose track of the fact that the crash in the leadership already happened — in 2022. That doesn’t preclude another crash, it just means that we have seen a very large decline for the mega-caps, and not so long ago.

That said, market concentration’s still a risk, JPMorgan warned on Monday, and a material one at that.

“The current period is in some ways worse than the dot-com bubble,” analysts led by Marko Kolanovic wrote. “Even as we didn’t achieve as high a forward PE as we saw in March 2000, when viewed from the perspective of an earnings yield spread of the top 10 versus the rest of the index, the current period is actually worse,” they went on.

The bank pointed to the spread between cap weight and EPS weight, and noted that in 2000, “the sector composition was better,” with half a dozen sectors represented in the top 10 versus just four today.

While there are good reasons to believe the mega-caps will meet or exceed growth estimates, various versions of the “cyclicals masquerading as growth stocks” narrative are a fixture of this particular debate.

“The megacaps’ high multiples have enjoyed an extended period of better growth, but being geared to the consumer and advertising revenues, they may prove to be more cyclical than expected,” Kolanovic and co. cautioned.