peachberry_tea

Using Sector Weight Analysis to Identify the Next Bubble

siegel said something very similar about identifying bubbles - look at the market cap of all companies in a sector. if the value of the entire sector is growing too quickly then it's a bubble. agree with author on this much

but to say that energy isn't going to go up because it's close to its "long run average" % of the S&P is suspicious though.. because the weightings of sectors on the S&P/market changes over time.. and if you make the fundamental argument that over the long run the global economy is booming (and 2008 is just a hiccup) then it makes sense that materials and energy sectors will grow relative to the sectors on the S&P.. and therefore if these sectors are to grow then their weighing should also increase above and beyond the "long run average"