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Shopify Inc. has accounted for 678 upside points of the S&P/TSX Composite index’s 3862 point climb since the market bottom on March 23. The second largest contributor was Barrick Gold Corp., which contributed only 179 points.

For some investors, this type of tech stock dominance is an unfortunate reminder of Nortel Networks and financially dangerous heights of the technology bubble in the late 1990s.

Michael Batnick, director of research at New York-based Ritholtz Wealth Management, tackled these new bubble fears head on in a recent column titled “Not Crazy can Still be Nuts.”

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The sheer size of global technology stocks is impressive and potentially worrying to investors. Mr. Batnick notes that the five largest technology companies – Facebook Inc., Apple Inc., Amazon.com Inc., Microsoft co. and Alphabet Inc. – now make up just under 25 per cent of the S&P 500, and are valued at three times larger than the entire Russell 2000 U.S. small cap index.

In terms of performance, the current surge in the tech-heavy NASDAQ 100 index pales in comparison with the frenzy of the late 1990s. From April 2015 to now, the index has generated an impressive 18.4 per cent compound annual return. From March 1995 until the bubble peak in 2000, the NASDAQ soared at a 60 per cent annual pace.

The rally has a long way to go to match the fervour of the late 1990s but the news on valuations is less encouraging. Technology stocks have pushed the average price to earnings ratio for the MSCI U.S. Large Cap and Mid Cap growth indices to almost 40 times. This is still below the 50+ average PE of early 2000, but also well above levels investors could consider inexpensive.

The author does not draw a firm conclusion from this analysis (neither do I for what that’s worth). “Trends can last a lot longer than we think possible,” he writes. “And if you’re convinced that we’re in the 9th inning of tech dominance, you should be open-minded to the fact that maybe we’re not.”

I would be much more comfortable if market leadership branched out to sectors beyond technology. As things stand, benchmark returns are dependent on a few, mammoth technology names that are increasingly expensive.

-- Scott Barlow, Globe and Mail market strategist

This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.

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Stock to ponder

Hardwoods Distribution Inc. (HDI-T) is a distributor of hardwood lumber and building products. On Friday, lumber prices climbed to a two-year high and this stock is a way for investors to benefit from the U.S. housing market, which looks promising. In 2019, 88 per cent of the company’s total sales came from the U.S. The company has announced a dividend increase each calendar year since 2012. Shares of the Langley, B.C.-based HDI recently exhibited a bullish “golden cross” pattern. Read Jennifer Dowty’s full analysis here. (For Globe subs)

The Rundown

Investors should be praying for a landslide U.S. presidential election

On November 4th, Americans will elect a president. The only stable scenario is where one of the candidates wins a victory strong enough to sweep away all doubts. If there are any questions, the U.S. could end up in a political crisis. This will undoubtedly impact investors, leaving a trail of uncertainty in an economic environment full of unknowns. Ian McGugan reports. (For Globe subs)

Brace for an awful earnings season

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North American companies start reporting second-quarter profits in bulk this month, and the full weight of the global COVID-19 pandemic will be painfully clear from the results. For both Canadian and U.S. benchmark indexes, analysts are expecting a 44-per-cent decline in year-over-year earnings, which would make it one of the worst quarters on record. Tim Shufelt looks for a silver lining. (For Globe subs)

Why are stocks rising amid so many unknowns?

The S&P 500 rose 20 per cent in the second quarter. But skeptics warn that further progress on either score may be much harder to achieve. “We’ve gotten the gains, now we’ve gone too far,” said Tobias Levkovich, chief United States equity strategist at Citi Research. “What happens to the tens of millions of unemployed? Retailers are closing stores. Where do those jobs go?” Read more here.

Others (for subscribers)

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Chairman invests over $1-million in this stock yielding 6.4%

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The highest yielding stocks on the TSX, plus risk data

Ask Globe Investor

Question: I currently hold a large cash position in U.S. dollars. I consider the U.S. equity market over-valued. Returns on USD GICs and money market instruments approach zero. What options exist for investing this cash? Are there opportunities in the U.S. bond market for a conservative investor?

Answer: You might want to consider the iShares Treasury Bond ETF (GOVT-A). This ETF invests exclusively in U.S. Treasury bonds, with maturities from one to 30 years. Treasuries are considered to be one of the safest places for your money right now and the fund has done well this year with a gain of 8.56 per cent since Jan. 1 (to July 2). Don’t expect that kind of return going forward but you’ll probably do better than leaving the money in a savings account.

--Gordon Pape

What’s up in the days ahead

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Jennifer Dowty talks to the CEO of Goodfood Market Corp., Canada’s biggest meal kit company and a stock on fire amid the stay-at-trend that’s taken root during the pandemic.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

For more Globe Investor stories, follow us on Twitter @globeinvestor

You may also be interested in our Market Update or Carrick on Money newsletters. Explore them on our newsletter signup page.

Compiled by Globe Investor Staff

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