If you think you can hide out in ETFs or high growth stocks and weather the downturn, please think again.

In case you failed to notice, investment sentiment has changed. The stock market struggles to go up on good news. Investors wonder if the Fed still has their back.

Some think they can weather the storm by diversifying into ETFs or by owning high quality growth stocks. In reality, the co-dependence between big tech and passive and algorithmic investing will cause far more pain than most anticipate.

Throughout the near-decade-long bull run, tech giants and passive and algorithmic investing ascended hand-in-hand. The more a small group of tech companies dominated market returns, the less active investors could outperform tech-heavy indexes. And the more capital herded to passive and quant strategies, the less firm-by-firm price discovery could restrain tech stock inflation. It was a virtual feedback loop and the consequence is historic capital concentration in the tech sector.

Companies in the NYSE FANG+ Index are valued at a multiple that's almost three times that of the broader gauge, a greater divergence than at the top of the dot-com bubble. According to a Morgan Stanley analysis, “the e-commerce bubble” — which includes FANG plus Twitter and Ebay — has inflated 617% since the financial crisis, making it the third largest bubble of the past 40 years behind only tech in 2000 and U.S. housing in 2008.

This brings us to passive investing's great illusion: diversification. As Jared Dillian, former head of Lehman Brothers' ETF desk, explained to Bloomberg in November: “retail investors who are buying ETFs or indexed funds are being sold on the idea that they're diversified. What [they] don't realize is that the trade is very crowded — like 20 million-other-people crowded.”

As Morgan Stanley warned in a report released last week: “[The sectors] now occupy top rankings within the momentum trade that are ‘grossly' out of proportion with their share of the market”: