Well, this is interesting. If this article at USA Today is to be believed, half of the increase in the S&P 500 over the last year came from just 21 stocks:
401(k) investors can thank just 21 superstar stocks for driving the big gains in their retirement savings accounts this year.
But is that a good thing?
The so-called 21 Club, which includes U.S. tech stocks like Apple, Facebook and Amazon and blue chips like Visa, Home Depot and McDonald’s, has accounted for more than half (50.7%) of the Standard & Poor’s 500 stock index’s 17.2% total return this year, according to S&P Dow Jones Indices data through Nov. 14. Total return includes the increase in a stock’s price and its dividend payouts.
The S&P 500, an index of the nation’s 500 biggest companies, is often dubbed “the market.”
But a market driven by just a handful of superstars — Apple alone accounts for nearly 10% of the index’s total return this year — is not always viewed positively by Wall Street.
I doubt if the “long tail”, the phenomenon under which an awful lot depends on a rather small number of players, is new to the stock market. The DJIA has been around for 130 years and its significance is largely based on that insight.
However, it seems to me today that long tail is longer than usual. 30% of the S&P comes from just five companies and 10% from just two (Google and Facebook). Here’s the part that’s concerning: those five are very dependent on government policies. Tweaking intellectual property, data, privacy, or security laws could bring any or all of them to their knees. That’s a far cry from when the S&P was dominated by Philip Morris, Thatcher Glass, National Can, and General Foods. For today’s leaders regulatory capture is the whole ballgame.
How does one square the earlier Forbes article about “corporate profits are at record levels” with this USA Today article? Earnings are not the same as stock price, but usually there is an explanation for why the ratios diverge. I’m guessing (1) S&P 500 is not truly reflective of overall corporate behavior; (2) profits are high, but are not getting higher; and (3) stock purchasers like sexy technology and an odd selection of non-sexy buys. I don’t really know, but the two articles are not describing the same environment to me.
Marx realized capitalist economies would immiserate their consumer base due to competitive pressures. As this has process has progressed over the last forty years, corporations have re-oriented themselves from their mass-consumer base to a single-consumer base; the federal government. This is where the corporate sector’s profits are flowing from, particularly those enterprises like Google, Raytheon, Apple etc. which are in a position to integrate themselves into the national security apparatus and heavily benefit from intellectual property laws.
Well, I don’t know about Marx or what Wolf says, but it is obvious we are creating, in a free country, a ruling class, answerable to no one, because they are working in tandem with for sale, crooked politicians.
No trust in Government, only trust in Trump, for now anyway, till he proves us wrong.
PD –
Bubbles are reflective of multiples, which are sky high right now. (just google a history of PE multiples) If the future earnings are there, the multiples will prove warranted. I’m not a believer.
FWIW – the Wilshire 5000 is the broadest index you can look at.
So, time to sell my Apple stock?
The really vulnerable ones are Google, Facebook, and Microsoft. I doubt that many people realize how niche-y Google’s primary business model is.