Trumpets

To the backdrop of trumpets and ticker tape, APPL launched it’s latest series of glitzy iPhones last week. The much anticipated improvements to the new gizmos appeared to be confined to the camera, the battery and some minor software improvements. And little else. Bar perhaps a titanium case and screen that pushes a little bit further out, thereby taking off the edges, if that’s enough for you to hand $1000 and change. Or more than the equivalent of four months repayments on the average student loan, as reported today in the WSJ. There was also a new charging port, but there was no accompanying drum roll given it was a development less to do with some clever R&D and more case of the EU telling them to stop being mean and put in something everyone can use. Lots and lots of comment then followed. Whichever way you go, the facts are the smartphone market is in decline. Those who want one, have one. According to International Data Corp, shipments are down, and down to the lowest level in a decade. The problem for APPL, and other richly valued tech names, is that valuations are up, but all too often growth is not. It’s down. When you get so big, the numbers start to look a bit more challenging. Which matters given the concentration is many of these names. The Information Technology sector is rumoured to be almost 30% of the S&P 500, and that’s with the likes of Alphabet and Facebook sitting in another camp. So too, for that matter, AMZN, Tesla and Netflix. Slice and dice it how you want, but owning the the broader index in any sort of passive way then, is some bet on a sector whose make up is starting to run. This concentration of capital has meant that other sectors, notably resources, have been starved of it. The energy sector, arguably as important to the health of the economy as being able to have Big Macs and buckets of deep fried chicken delivered to your front door, is just 5% of the index. And 5% going into a supply crunch. As the IPO market reopens and the likes of Instacart go public at valuations that pale in comparison to what many bulled-up VCs piled into during the reckless age of free money, the cheering and whooping on the opening bell may be a tad hollow and offers a hint, a whisper, that the sands are quietly shifting. An era is ending. Higher rates do matter. So too do valuations. That 30% weighting for IT is not likely going to 40% any time soon. Not in a world of structurally higher everything. Higher for longer. All round. Bar, perhaps, certain share prices.