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Having already brushed aside the pandemic to recapture record highs, the expansion of the high-flying technology sector as a share of overall investment indexes is prompting some concerns about overexposure.

After another 10-per-cent surge in the six weeks through mid-July, broader tech stock indexes are ending the month in a more down-to-earth mood as angst about an overshoot emerges ahead of a big earnings week for the sector.

Wall Street’s tech-heavy Nasdaq Composite index has added more than 4 per cent this month. But that’s less in U.S. dollar terms than global stock aggregates – Germany’s DAX, Shanghai and even broad emerging markets indexes.

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To be sure, the accelerating U.S. dollar slide tilted that ranking. And New York’s FANG+TM Index – including the vanguard FAANGs of Facebook Inc., Apple Inc., Amazon.com Inc., Netflix Inc. and Google-parent Alphabet Inc. alongside Tesla Inc., Twitter Inc., Nvidia Corp., Baidu Inc. and Alibaba Group Holding Ltd. – still beat the lot with an 11-per-cent July jump amid Tesla’s latest outsize 40-per-cent boom.

But a combination of the dramatic bounce since March – which has seen the Nasdaq climb more than 50 per cent and FANG+TM gain more than 70 per cent, and discomfort about valuation multiples of some firms that range 20 per cent to 30 per cent above three-year averages, has seen some investor angst about bubbles resurface.

Comparisons with the dot-com boom and bust around the turn of the millennium are back up for discussion.

JPMorgan’s head of cross-asset strategy John Normand flagged what he called “concentration risk” due to the sheer size the sector would now occupy in mainstream portfolios.

The worry, he explained, is any sector-specific shock gets amplified far beyond tech, not least because investor positioning is so skewed to the losses even in the event of stock market rotations from one area to another.

JPMorgan Chase & Co.’s conclusion is that the picture is not yet clear-cut to warrant systemic fears just yet.

Although the S&P 500′s tech sector accounts for a whopping 25 per cent of the overall index value – as high as any other sector has ever commanded – Mr. Normand pointed out it was still 10 points below the 35-per-cent peak hit at the height of the dot-com era.

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Different slices throw up different metrics, however.

What he called “Big Tech” – grouping tech and communications services alongside Amazon from the “consumer discretionary” sector – would account for about 40 per cent of the S&P 500 and exceed the prebust period of the late 1990s.

On the other hand, concentration in credit markets is more modest. The tech and telecom sectors comprise less than 10 per cent each in investment grade and high-yield indexes, according to JPMorgan.

Mr. Normand doubts the economic, political or incoming earnings pictures contain a trigger for a major tech reversal yet. Even if Democrat Joe Biden wins the U.S. presidency in November, the sorts of regulatory or tax hits on the sector advocated by more left-wing Democrats seem unlikely.

And the long-term growth story and digital transformation theme sees beyond most other temporary pullbacks.

“The risks from extreme positioning in Tech/Quality stocks have always been present … but an intra-month technical adjustment rarely builds on itself absent a succession of fundamental and policy catalysts,” he told clients, characterizing any correction as “more tactical than strategic.”

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Dubbed in 2016 by World Economic Forum chair Klaus Schwab as the “Fourth Industrial Revolution” – new technologies fusing physical, digital and biological worlds that affect all industries and economies – investment in related stocks has been largely driven by this kind of long-term vision rather than cyclical ebbs and flows.

Since the start of the last bull market in 2009, the combined market cap of Apple, Alphabet and Amazon and Microsoft Corp. alone has risen 17 times, from US$326-billion to US$5.77-trillion.

And yet periodic overshoots do happen, and some see parts of the overall tech complex ripe for a cooling.

One of the most bullish U.S. equities houses, Morgan Stanley, this week cut its recommendation on software stocks.

Morgan Stanley strategists reckoned enterprise value-to-sales in excess of 10 times “evokes memories of the tech (dot-com) bubble and limits the upside case, especially as rate of change on relative tailwinds may be turning.”

The move was hardly a major warning, preferring to temper historically high valuations with obvious difficulties in keeping pandemic-related IT spending surges going for the full year in such a shocking overall global economy.

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Morgan Stanley didn’t see a repeat of 2000′s dot-com bust. But it displayed rare caution about a sector that has seemed to throw it to the wind this year.

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