The Stock Market Flashes a Warning Seen During the Dot-Com Bubble. History Says the S&P 500 Will Do This Next.

The S&P 500 trades at an expensive valuation that has historically preceded negative returns over the next one, two, and three years.

The "Magnificent Seven" stocks achieved an average return of 335% during the last five years, while the S&P 500 ( ^GSPC -0.01% ) advanced 92%. That dramatic outperformance has led to those companies becoming a large part of the overall index. The Magnificent Seven account for one-third of the S&P 500 by market value .

Lisa Shalett, chief investment officer at Morgan Stanley , sees that concentration as a substantial risk. Not just because seven companies represent a large percentage of the entire U.S. stock market but also because they trade at expensive valuations.

Indeed, Shalett says the Magnificent Seven are currently as expensive relative