Payne Capital Management Senior Wealth Advisor, Courtney Dominguez, joined Yahoo Finance Live to break down thwe meaning behind the market's tech sell off.
ADAM SHAPIRO: We are roughly 15 minutes to the closing bell. Please welcome into the stream Courtney Dominguez who is Payne Capital Management's senior wealth advisor. Help us understand, Courtney. We've been talking about work from home and that phenomenon, but it seems like put a fork in that because there's a tech sell-off underway.
COURTNEY DOMINGUEZ: Yeah. And this is something that really has started, actually, back in the fall. And I think you're really just starting to see that exacerbated right now. But it's a trend that likely is going to continue. And this is a trend that actually tends to happen after each-- as we get out of a recession. You tend to see stocks move towards cyclicals. So things like value companies or small caps, things like energy tend to do really well as you're coming out of recession.
And what happened last year is those tech companies were really doing so well, but their prices were getting extremely high. Just to put this in perspective, the S&P 500 right now is very overweighted in tech just because they take up such a large weighting of the S&P 500 right now. And the S&P 500 valuations are at its 99th percentile going back to the '70s, only beat by when the tech bubble happened in the early 2000s. And that's just happening because these tech companies are getting so expensive.
And at a certain point in time you're going to see big institutions and investors starting to move away from those expensive areas and into things like your value and your dividend payers. A good example, actually. Warren Buffett just came out with his annual letter and he's doing the same thing, actually shaving some off of Apple and adding to some things like your financials and your energy. And I think that's something we really want to make sure, that we're following that trend as an investor, is you're making sure you're aware of that.
JEN ROGERS: I thought this time it was going to be different, though. I thought this time we've gone through this pandemic, it's this crazy situation where we've pulled ahead all this demand, we're completely changing the way that we work, the way that we live.
COURTNEY DOMINGUEZ: Mm-hmm.
JEN ROGERS: Why does that argument not hold water anymore, that we heard so much in the last six months or year?
COURTNEY DOMINGUEZ: Yeah, I would say those are some of the most dangerous words in investing is, this time is different, because I would tell you history definitely tends to repeat itself. And I don't think these companies are necessarily going away. I don't think that the way we're working from home is going to stop. I think a lot of these are going to be things that we are going to continue to have in our workplace going forward.
But the question is, are these companies so expensive? Is all of the optimism already priced in? And that's different than these companies continuing to be a main forefront of how we work going forward. So that's what you need to look at, is how expensive are these companies getting compared to how far can they really grow? And there's still a lot of areas of the economy-- and it happens to be those cyclicals-- that are now just starting to recover and they still have a lot more room to run right now. And that's what you really need to look at at the end of the day, more so than just how exciting the stories of these companies are. Look at the underlying valuations.
ADAM SHAPIRO: A lot of investors don't go specifically into any sector. They have an index fund. And if the S&P 500 is heavily weighted right now by the tech sector and we're seeing this sell-off, are there are a lot of investors who are feeling wealthy right now who are about to get burned if tech is selling off and that's going to pull down the S&P?
COURTNEY DOMINGUEZ: I love that you bring that up, because, yeah, I find this all the time. I have people come to me and they say, oh, yeah. I'm well diversified. I own the S&P 500. What people don't realize is 20% to 25% of the S&P 500 is just five companies. And it's your Apple, your Google, your Microsoft, your Amazon, your Netflix. It's those big, brand name companies take up a really high weighting of the S&P 500.
So you thinking that you own the markets, like the S&P 500, you might be a lot more overexposed to tech than you realize. Which is actually great. It's worked in your favor. It's done really well. But it's a really good opportunity to just take a look at your investments and make sure that you are properly spread out, especially in things like your 401ks. Index funds are a very common way to get invested. And it is a very good way of getting invested, but you want to make sure you have several different sectors, not just the S&P 500. It's a great point you bring up.
ADAM SHAPIRO: I think I'm going to shift all of it into Enron. I'm joking. I'm joking.
COURTNEY DOMINGUEZ: [LAUGHS]
ADAM SHAPIRO: I joke. Thank you very much for joining us. Courtney Dominguez is Payne Capital Management senior wealth advisor.