Seldom have so many owed so much to so few. No, I am not talking about the brave British fighter pilots who resisted the German air attacks on the UK during World War 2, but about a small group of companies that have helped ensure the US continues to be one of the absolutely best performing equity markets.
The five digital giants Microsoft, Apple, Amazon, Alphabet (Google) and Facebook epitomise the digital age and the new habits we have acquired since the dawn of the new millennium, and via their strong business models they currently account for around 21% of the S&P 500 index, which includes 500 of the biggest listed companies in the US. Never before have the five biggest companies in the S&P 500 index made up so large a share of the index – the previous record was set in 2000, when Microsoft, GE, Cisco, Intel and WalMart accounted for around 18% of the S&P 500.Coronavirus boost
In recent years, this digital fivesome has accounted for an ever increasing share of the index as the global frontrunners for a new generation of digital companies, and our tackling of the coronavirus by means of lockdowns and social distancing has only given many digital companies a further boost.
Stay-at-home companies, in other words companies that allow us to work, shop and, not least, entertain ourselves at home have rightly proved particularly robust in recent months. Equity prices for many of these companies have fared noticeably better during the corona crisis than the market in general – Amazon’s share price, for example, has in fact risen. In the shorter term, however, this could potentially present them with something of a challenge equity price-wise. The explanation for this is as follows:
Many equities in, for example, the financial, industrial and oil sectors have been dealt a severe blow by the corona crisis, as the economic slowdown has hit them harder and so they now constitute a lesser share of many investors’ portfolios than was the case just a few months ago. That is also why we have seen investors flock to these equities in recent weeks on days when the financial markets are marked by optimism about the coronavirus pandemic and the imminent reopening of the world’s economies – and this trend may well be reinforced later this year.