The Market’s Big Tech Concentration Is Not a Problem, Robeco Report Finds

Even if an economic dip sends stocks lower overall, the Mag Seven’s earnings should hold up, the Dutch firm says.


Are U.S. stocks too focused on Big Tech, particularly the Magnificent Seven? Yes, but that is a good thing, per an investment outlook by asset manager Robeco.

In the view of Robeco, a firm based in the Netherlands, “it could very well be that the U.S. equity bubble keeps buzzing for up to five years even if  if the U.S. economy enters a soft patch in 2025.”

Why? Even if other stocks falter amid an economic slowdown, the odds are that Big Tech will keep powering on, Robeco reasoned. Thus, “investors would be willing to pay a high premium for U.S. technology stocks’ ability to generate earnings.”

The wide-ranging Robeco report, “Atlas Lifted: How the tectonic plates of the global economy are shifting,” was authored by Peter van der Welle, a strategist and member of the firm’s sustainable multi-asset team, and Laurens Swinkels, the team’s head of quant strategy. The 127-page study spanned the global investing universe, covering everything from macroeconomics to expected returns for various asset classes.

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The title is a reference to the 1957 novel “Atlas Shrugged,” which used the mythical giant Atlas shrugging as a metaphor for the need of individualistic business strivers to create prosperity on their own and to avoid government interference. (Atlas is the government in that metaphor—his shrugging means he no longer is involved in human affairs.) Robeco, however, argued that there needs to be a partnership between government and private enterprise to build better economic tomorrows. Therefore in Robeco’s telling, Atlas should be lifting the economy.

The S&P 500’s price/earnings ratio has marked steady advances and hit 28.2 as of the beginning of September, per GuruFocus. That is up from 24.3 12 months before and from 20.6 in September 2022. But the Mag Seven (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla) provide almost one-third of the index’s earnings.

As a result, S&P 500 earnings have indeed been doing well. According to FactSet Research Systems, for 2024’s second quarter ending June 30, compared with the year-prior period, the index’s earnings growth rate was 11.3%. That was the highest year-over-year rate reported by the index since 2021’s fourth quarter (31.4%).

Nonetheless, Robeco expected the P/E expansion to ebb in the coming five years: “U.S. nominal yields averaging around 4% will probably exert downward pressure on U.S. multiples in the second half of the 2020s, capping total U.S. equity returns despite solid earnings especially from technology,” its report stated.

Whether the U.S. stock rally can continue at the current pace for the rest of the decade amid high prices is another question. Robeco warned that, “due to over-valuation, there could be below-steady-state returns for U.S. equities over the next five years,” but note that the report still sees positive returns overall.

The Federal Reserve is expected to lower interest rates starting with its policymaking body’s meeting next week, likely by a quarter point. If the reductions beyond that are small and not sustained, then “equity markets may continue to rise relative to sovereign bonds in the U.S.,  Robeco reasoned.

The 10-year Treasury yield has fallen 1.3 percentage points since last October. Robeco contended that a stronger and continuous rate drop would signal the Fed is combating perceived economic weakness. That, however, is not the expectation now, it added. The Robeco report gave three scenarios, ranging from optimistic to pessimistic. In the best scenario, the developed nations have a 7.5% annual equity growth over the next five years.

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JPMorgan Chase CEO Dimon Skeptical of Private Markets Growth

The shrinking of the number of public companies is not a good thing, Dimon said at a conference in Brooklyn this week.

Jamie Dimon

Jamie Dimon, CEO of JPMorgan Chase & Co., on Tuesday criticized institutional investors for their increasingly large focus on private markets and also noted how the number of public companies in the U.S. has shrunk dramatically since the 1990s.  

“From 1996 to today, from 7,600 public companies to 4,500,” Dimon said at a panel at the Council of Institutional Investors’ Fall 2024 Conference in Brooklyn, New York. “It should have gone from 7,600 to 15,000, and private companies—I don’t even know the number in total—have gone from 1,000 to 10,000 in this country. Private markets have grown dramatically, and they don’t have the same transparency and liquidity and research, and you may think that’s a good thing, and there are good attributes, so it’s not a criticism, but is that what you want?”  

‘What Is It We Really Want in Our Own Capital Markets?’ 

Long-term investors, like pension funds and endowments, have increasingly favored alternative asset classes as a source of returns uncorrelated with returns in the public markets and to take advantage of the illiquidity premium that can exist in these investments, which often tie up investors’ money for a long time. Investors that need daily liquidity are often limited to public market assets that trade on exchanges. 

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Also, due to the increasing speed of information shared about public companies and trading of their stock, there are few opportunities for investors to gain an information advantage—and earn outsized returns—in those markets. Many investors see more such information advantages in private markets. 

Dimon scolded the audience, primarily comprised of senior professionals at institutional asset owners, for its members’ large allocations to the private markets.  

“You are all huge causes of that, because you make huge investments in the private side,” Dimon told the crowd. “You talk to us about all the issues that you’re interested in, but when you make huge investments in the private side, you don’t get that kind of transparency, compensation, governance, boards, values and stuff like that, but you foster it, you know.” 

Dimon said he would like JPMorgan Chase to be private, as it would reduce some of the headaches and risks associated with operating as a public company. 

“I’d love to be private if I could; I don’t know of a public company who wouldn’t say that,” Dimon said. “You have less litigation, less SEC, less frivolous shareholder meetings, more time to focus on long-term things. And I think we should step back and say, what is it we really want in our own capital markets?” 

In JPMorgan’s annual CEO letter in April, Dimon warned that public markets were at risk of shrinking further. He criticized the pressure that companies are under to focus on quarterly results, which can lead to good financial decisions or results in the short term, but bad ones in the long term. 

In the letter, Dimon also criticized shareholder activism, saying the frivolity of the annual shareholder meeting is one reason why operating as a public company has become less desirable.  

Alts Continue Taking Bigger Role 

In a separate panel at the conference, public pension fund executives discussed how the investing environment had evolved since the global financial crisis of 2008 through 2009 and how alternative investments became a more important part of their portfolios than ever before.  

Many public pension funds and other institutional investors have significantly increased their allocations to alternatives in the last few years. In March, the board of the California Public Employees’ Retirement System approved a plan to increase its private markets assets to 40% of the $502.9 billion portfolio, up from a target of 33%. 

“There has been a dramatic decrease in the number of publicly traded companies in the U.S. from its peak in the mid-1990s,” said Tyler Bond, research director at the National Institute on Retirement Security, at a panel discussing the evolution of asset allocations in public plans since the global financial crisis. “The private markets have grown a lot, and there’s much more incentive for public plans to look at investing in the private markets. So that has also contributed to the changes in asset allocations that we have seen since the GFC.” 

According to research from CAIA, 20 years ago, private markets accounted for only 6% of global assets under management, or only 6%. In 2024, that figure grew to 15% of global AUM. According to research from Vidrio Financial, capital inflows to alternatives managers grew 19% in 2023.  

A survey of 203 institutional investors by Commonfund in April found that 45% of respondents planned to increase their allocations to private equity in the next 12 months; roughly half of those surveyed believed private equity would deliver the best returns over the next year.  

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Public Markets at Risk of Shrinking Further, Says Jamie Dimon 

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