In short, yes, but valuation may be a limitation to how far they can run. These companies have revealed themselves to have strong secular tailwinds, fortress balance sheets and business models that are both flexible and resilient. This has not gone unnoticed, of course. The top five stocks in the S&P 500 (Apple, Google/Alphabet, Microsoft, Amazon and Facebook) have led the market in terms of return and have an aggregate forward price to earnings multiple of 26 times 2021 estimates.
While we know that valuations are a very poor market timing tool, they do tell us that there is a lot of good news baked into investor expectations. We also know that, longer term, high valuations suggest lower long-term returns. This makes sense: High valuations reflect abundant confidence and an assessment by investors that these companies are more stable/lower risk. Risk and reward are related, so lower risk can drive lower returns.
Also, there is another current tailwind to these top five behemoths; these are growth stocks, and in the absence of overall economic growth, investors will pay a high price for growth. This condition may change if we start to see an inflection in overall economic growth. If and when we see not just stability but actual growth in the U.S./global economy, investors may shift their focus to companies with the highest sensitivity to recovery: smaller-cap companies and those in the financial, industrial and energy sectors. We have started to see a nascent shift into those areas over the past few weeks, and this trend is something we will continue to monitor.