Markets Gone Mad

Apple achieved an incredible financial milestone two weeks ago, reaching a market value of over $1 Trillion and that continues to rise.  The NY Times has a really good article about what this means for the economy in terms of income inequality and the consolidation of a significant amount of money in a small handful of companies.  Below are some of the more astonishing excerpts from the story:

This year, five tech companies — Facebook, Apple, Amazon, Netflix and Google’s parent, Alphabet — have delivered roughly half of the gains achieved by the Standard & Poor’s 500-stock index. Apple is the only company with a $1 trillion market value, but Amazon this year has been nipping at its heels. It is currently valued at more than $880 billion.

Apple and Google combined now provide the software for 99 percent of all smartphones. Facebook and Google take 59 cents of every dollar spent on online advertising in the United States. Amazon exerts utter dominance over online shopping and is getting bigger, fast, in areas like streaming of music and videos.

But the trend is not confined to technology.

Today, almost half of all the assets in the American financial system are controlled by five banks. In the late 1990s, the top five banks controlled a little more than one-fifth of the market. Over the past decade, six of the largest United States airlines merged into three. Four companies now control 98 percent of the American wireless market, and that number could fall to three if T-Mobile and Sprint are allowed to merge.

This time two years ago, Apple’s market value was as “low” as $520B. At the time, they were still the most valuable company, but in just two years they have nearly doubled their value.  The last time Apple wasn’t the biggest company was in the 2nd quarter of 2013 when Apple was beat by ExxonMobil for just that one quarter. To show how significantly the landscape has changed, ExxonMobil’s current position is now in 10th place.  To really emphasise how much of the market is contained within a single company, the NYTimes also has a neat interactive feature that shows if you combine the value of 111 S&P 500 companies they would come close to matching Apple.

What are the limits of this incredibly bullish market?  As we’ve seen with Facebook’s market value dropping by $120 Billion in a single day, the problem with these companies having such a lion’s share of the economy is that when they fall, the effects are massive.  One interesting thing that has been noted about Facebook’s drop is that even though the company lost as much money in a single day as some major companies like Nike are worth in total, there were few calls for their CEO or any top executives to step down.  In any other era if a company lost that much money there would be immediate consequences but that isn’t the case today.