At a staggering $2.4 trillion, the combined market value of the five FAANG stocks, Facebook Inc. (FB), Apple Inc. (AAPL), Inc. (AMZN), Netflix Inc. (NFLX) and Google parent Alphabet Inc. (GOOG) now exceeds the French CAC 40 Index and the German DAX Index, and nearly equals the London FTSE 100, according to the Financial Times. Remove all tech shares, which are up about 20%, and the year-to-date gain on the S&P 500 Index (SPX) plummeted from a robust 7.9% as of Friday to a mere 1.4%, the FT calculated as of the open of trading last Friday. (For more, see also: These 10 Stocks Are Fueling the S&P's Rise.)

The FAANG stocks have done even better, with Alphabet up over 25% (both the voting Class A shares, ticker symbol GOOGL, and the nonvoting Class C shares, trading as GOOG) through Friday's close, and the other four tech behemoths each gaining more than 30%. Nonetheless, Bank of America Merrill Lynch, a division of Bank of America Corp. (BAC), recently warned that "There are nascent signs we are in the very early stages of an overshoot," as quoted by the FT in its May 25 story. (For more, see also: Why Mega Tech Stocks Will Win Longterm.)


Negative Economic Surprises

Reason for caution may lie in the Citi Economic Surprise Index (CESI), developed by Citigroup Inc. (C), which gauges whether actual values of key economic indicators are above or below consensus forecasts. Net positive surprises push the CESI into positive territory, and net negative surprises produce a negative value. Right now, the CESI is negative and at its lowest level since November, which the FT cites as a matter of concern for equity investors, especially owners of frothy tech shares. (For more, see also: Fed Rate Hike Bets Are Slashed on Weaker Economy and The Single Number Preventing a Trump Bull Market.)

Signs of a Tech Bubble

Hedge funds are investing heavily in tech shares, while Facebook, Amazon and Google all represent big positions in funds tracked by Goldman Sachs Group Inc. (GS), per the FT. Meanwhile, Merrill Lynch calculates that tech-focused mutual funds were on track to record their biggest annual inflow of funds in 15 years, the FT adds. These are signs of growing momentum investing that inflates valuations to bubble-like proportions, the FT opines. (For more, see also: The Gold Rush Into Tech Is Still On.) and Why Investors Are Doubling Down on Tech Stocks.)

​More generally, growth stocks are enjoying a particularly strong run, but their rally is being led by tech stocks, primarily the FAANG five, says the FT. Meanwhile, the S&P 500 Growth Index (SGX) is up 12.93% year-to-date through Friday, per S&P Dow Jones Indices, while the S&P 500 Value Index (SVX) is up only 2.25%, also per S&P Dow Jones Indices. This discrepancy is just 1 percent off from being the greatest since the Dotcom Bubble of 2000, another reason to worry according to the FT.

But Don't Get Carried Away

"Citi says it's best not to get carried away by Citi's Surprise Index," reads the title of an earlier FT article. This May 8 piece quotes a Citigroup statement that "The Citi Economic Surprise Index is a perfect example of unique proprietary design which has almost no bearing on those who discuss it...The models were built by quantitative analysts in Citi's FX unit and were structured for currency trading...It was not meant to be used for stock prices." As far as the recent decline in the U.S. CESI goes, Citigroup said that "it was near a five-year high six-to-seven weeks ago and was vulnerable to a pullback." 

Meanwhile, despite its overall bearish outlook, the initially-cited FT article mentions that the S&P 500 Information Technology Sector is trading at a "reasonable" multiple of forward earnings, and admits that "there is little on the horizon to dent the growth of the FAANGs." While the IT Sector forward price-earnings (P/E) ratio is 18.1, that for the entire S&P 500 is 17.3, per data from Yardeni Research, Inc. (For more, see also: Why Techs Will Fly Higher, A Technical View.)

 But at some point, though, even the techs' momentum will reverse, the FT notes. As with many bull markets, the party may run until well after midnight, but it finally comes to an end.