The major market indexes are increasingly driven by price movements in technology shares, and this poses a growing threat to stock prices in general. As Chris Harvey, head of equity strategy at Wells Fargo, told CNBC: "The tech sector is more than 25% of the S&P 500 so it [a selloff in tech stocks] would be bad for the broader market. We expect that if the tech sector stumbled you would see the equity sector stumble."

Technology Outperforms

Here are cumulative gains over several recent time periods for the S&P 500 Index (SPX), the Nasdaq 100 Index (NDX) and their tech sector components. The Nasdaq 100 often is used as a proxy for the technology sector, and frequently described as "tech heavy." Indeed, technology stocks now account for 54% of its value, according to Nasdaq.com.

Index YTD 1 Year 3 Years 5 Years 10 Years
S&P 500 Info Tech Sector (S5INFT) 10.8% 27% 79% 170% 273%
S&P 500 Index (SPX) 2.6% 14% 38% 90% 155%
Nasdaq 100 Tech Sector Index (NDXT) 7.2% 18% 75% 174% 280%
Nasdaq 100 Index (NDX) 10.0% 21% 56% 146% 264%

Sources: S&P 500 indexes per S&P Dow Jones Indices; Nasdaq 100 indexes per Yahoo Finance; data through June 25.

Eyes on the Exits

While Harvey is increasingly worried that tech stocks may be nearing a peak, telling CNBC that "Good news sometimes turns to bad," he is not yet ready to put out a sell signal. But he has his eyes on the exits. As he also told CNBC: "We are reluctantly holding on. We are getting ready to get ready. We're not there yet but we're looking for those signs. More people are positive on the sector. As we talk to clients, they're starting to capitulate and value players that weren't involved in this space are starting to buy into the space. Those are usually signs that we're late in the cycle and that gets us concerned."

“The tech sector is more than 25% of the S&P 500... if the tech sector stumbled you would see the equity sector stumble."  Chris Harvey, Wells Fargo

Jim Paulsen of The Leuthold Group also is not issuing an outright sell signal on tech stocks right now, but he is concerned about overcrowded investments in "a very narrow number of popular names," such as the FAANG stocks. Noting that the growth of these stocks has made the S&P 500 "more aggressive" and "half as defensive" since the start of the current bull market in 2009, he advises investors to take profits in their tech holdings. Walter Price of Allianz Global Investors and Rob Arnott of Research Associates have voiced similar concerns. (For more, see also: Sell Tech Stocks Now Before Bubble Bursts: Paulsen.)

Avalanche Zone

While the entire technology sector represents 25% of the value of the capitalization-weighted S&P 500, just the five FAAMG stocks account for 15% of its value, per SlickCharts.com. As Harvey alluded to above, a loss of investor confidence in a relative handful of tech stocks thus can exert severe downward pressure on the broader index, eventually building into an avalanche of generalized selling by panicked investors. The increasing influence of computerized algorithmic trading adds to the dangers. (For more, see also: How Algo Trading Is Worsening Stock Market Routs.)

One of the factors that could touch off a tech selloff is a sudden reversion of valuations back toward historic norms. The forward P/E ratio for the S&P 500 technology sector recently was estimated to be nearly 19 times estimated earnings over the next 12 months, versus about 17 for the S&P 500 as a whole, and up from a value of about 10 times forward earnings for tech stocks in 2008, per Yardeni Research Inc. Longtime tech bull Paul Weeks has turned bearish on the sector this year, based on his own assessment of rampant overvaluation. (For more, see also: Tech Bull Meeks Shuns Sector, Buys Banks Instead.)

Trouble Brewing in Washington

The growing trade war between the U.S. and China has negative implications for many tech stocks. For example, semiconductor manufacturers based in the U.S. are heavily dependent on supply chains that stretch into China, and tariffs can increase their costs significantly. Also, U.S. moves to limit technology transfers to China based on national security concerns can limit the ability of numerous U.S.-based tech companies to outsource production to Chinese plants, or to sell into the Chinese market, per another CNBC report. (For more, see also: 5 Chip Stocks At Risk In Expanding Trade War.)

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