Many clients are asking how the U.S. stock market can be flat for the year to date, when much of the economy is still in a funk. The short answer is… another question: what’s your definition of the “stock market”? If you’re using the capitalization-weighted S&P 500 Index as your measure of the average stock, have a look at the chart below:
It shows that just five companies account for more than 100% of the index’s gains for 2020 to date. These behemoths (Microsoft Corp., Apple, Inc., Amazon.com, Inc., Facebook, Inc. and Alphabet, Inc.) have gained a cumulative 35% for the year. Take them away, and the remaining 495 firms in the index are down about 5%. According to Goldman Sachs, the Fab Five now account for 23% of the S&P 500’s value, the highest fraction for any quintet since World War II. Microsoft alone commands nearly 6% of the index’s value, near the 6.4% record set by International Business Machines (IBM) back in 1985.
We like to remind clients that no company is bulletproof. After the personal computer arrived on the scene in the early 1980s, IBM (wags of yesteryear said the symbol meant I Bank Money) never again approached this market esteem level. What apocalyptic new product or service awaits the Fab Five today?