U.S. stock market gains are incredibly concentrated.

One of the hallmarks of mature U.S. stock markets is when index funds are doing better than actively managed mutual funds. That’s because the “rational” active managers are scared so they begin to avoid risk. The result is lagging returns relative to fearless, mindless index funds. I’ve seen this in 1987, 1990, 2000, and 2007. It can go on for years.

Another indicator of mature stock markets is when the market concentrates into only a few big players. This time, the big players are the FANG stocks (Facebook, Amazon, Netflix, Google). Citibank broadens them out to the FANTASY stocks (Facebook, Amazon, Nvidia, Tesla, Alphabet, Salesforce.com and Yahoo). However you label them, they are up a lot so far this year, about 30% by some estimates, and account for the majority of the broader indices’ gains. Doesn’t this sound familiar to anyone?

Also according to Citibank they have an average P/E of over 60, which is way up there in the bubble zone. That’s more than overvalued. And of course they are skewing the large indices’ valuations higher.

Combine this with the cryptocurrency markets and you’ve got looneytunes right here, right now. This has bubble written all over it. But it’s NOT a bubble in the entire financial system. Yet.

What happens next?

This may go on for years. My thought is that there’s no need to rush for the exits as long as we stay diversified. And if we sell early we risk being left far, far behind.

On the other hand a political event could trigger the inevitable landslide.

Meanwhile, economies are growing and valuations are much cheaper overseas. I’m examining that option.

Stay diversified. We are sure to have an interesting year.

For more evidence, read here.