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Ron Insana: For the primary time, a recession may finish with a bear market

Tim Cook, Apple's CEO, speaks at the 2019 Dreamforce Conference in San Francisco on November 19, 2019.

David Paul Morris | Bloomberg | Getty Images

With all due respect to the late and great Tom Petty, it is "the most difficult weighting" with today's stock market averages.

It is well known that the stocks of mega-cap technology, from Apple to Amazon and from Microsoft to Facebook, in the Nasdaq Composite and in the S&P 500 are so heavily weighted that they have even pushed that average to new highs average inventory has fallen by over 3% since the beginning of the year.

The mega-caps account for well over a quarter of the market value of the S&P 500 and even more of the NASDAQ, a concentration of profits we haven't seen since the peak of the internet bubble in late 1999 or the energy bubble in the early 1980s.

The strange thing about this potential turning point is that the profits from these stocks were made in the midst of a pandemic and recession, rather than an out of control bull market based on the underlying euphoria typical of love for a particular asset class.

In a very strange way, these stocks all appreciated in value because they not only survived the pandemic, but thrived in it.

Amazon, Walmart, Apple, and other more speculative investments like Tesla and Zoom have been either direct or indirect beneficiaries of the bubble of fear that kept people at home where those companies worked best for them.

On Wednesday we got a very good impression of what happens if a drug emerges that reverses the progressive spread of the coronavirus and brings us closer to normal and further from home.

The good news from Johnson & Johnson about the launch of Phase III trials for its "one-shot" corona vaccine made stocks "stay home", "work from anywhere" sway … which, by the way, did Case is above mega-cap name.

The accelerated spread of the virus in Europe has certainly raised some concerns, but this was not apparent in European markets on Wednesday. They were up until Wall Street was rejected.

Does the recession end with a bear market?

So is it possible that good news is very bad news for stay-at-home stocks, and if so, will their extremely high weighting in major averages cause a bear market on Wall Street?

Even if other groups lose their prospects of a return to recovery and normalcy, they are nowhere near enough weighted in the major averages to offset heavy losses in the mega-cap names.

In other words, are we going to see the emergence of an angry bull market in a myriad of seedy names that quite simply no one will notice? This is an important question not only for Wall Street, but also for Main Street and Washington.

A bear market in the most overvalued, heavily weighted sectors of the stock market could prompt the Fed and federal government to take additional measures to stimulate the economy, even if the economy picks up in real terms. At the same time, stocks could tell a very different story.

That recovery would be masked by the decline in big names, but it would also mean people going to malls, restaurants, movie theaters, staying in hotels again, and getting on planes, trains and cars. It would be an interest rate compromise that will benefit Main Street much more than Wall Street. It will take time to see if we are actually on this path.

Whether it's J & J's vaccine or another company's vaccine, an effective therapeutic that will allow us to reset the behavioral calendar to 2019, these questions will take some time to answer. It is interesting to note, however, that for the first time in history I can remember a recession could end with a bear market rather than start one.

If you look at the Nasdaq Composite, which was already down 12% from its all-time high due to the fall in technology stocks in September, the idea shouldn't seem that far-fetched.

In the meantime, Tom Petty's literal words are spot on … for the next few months as we hope for the best, the wait will indeed be the hardest part.

– Commentary from Ron Insana, a CNBC and MSNBC contributor and author of four books on Wall Street.

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