We’ve Been Here Before—and It Ended with An Epic Crash

The comments below are an edited and abridged synopsis of an article by John Rubino

Wolf Richter has published some ominous charts. The major market indexes that recently soared back to record highs are being lifted by an amazingly small number of stocks—Apple, Microsoft, Amazon, Google and Facebook—which he calls the ‘Giant 5.’  These stocks now account for nearly one-fifth of the Wilshire 5000 stock index’s value.

We’ve Been Here Before—and It Ended with An Epic Crash | BullionBuzz
A graph showing large selling of global stock markets, crashing in 2020 on global fears including a pandemic and oil prices. 3D illustration

That kind of dependence on a handful of companies is scary. What’s even scarier is that we’ve been here before, and each time the result was ugly.

Richter summarizes: “This is how dependent the stock market, and broad portfolios reflecting it, have become on the Giant 5. It’s not that there aren’t a bunch of other companies that have gained as much or more than the Giant 5 in percentage terms—there are—but in dollar terms, and in weight in the market, they just don’t measure up to these five giants.”

“Apple and Microsoft both are now worth over $1.5 trillion. Amazon is at nearly $1.4 trillion, Alphabet at $1 trillion. These are gigantic valuations. They also speak of an immense concentration of power in a single company.”

“Among the losers in the rest of the market are companies that used to be the largest in the US stock market, such as Exxon-Mobile, which since January 26, 2018, has lost 48% of its value. The entire and once vast oil-and-gas sector has gotten crushed.”

“The market, and broad portfolios, are immensely dependent on the Giant 5. That was great on the way up—on their way to becoming giants, when their share of the overall market doubled in 3.5 years, from 10% in January 2017 to nearly 20% today.”

“But if they sell off—there are myriad reasons why giants sell off, as all prior giants have found out—the impact of these five companies is going to be proportional to their giant size.”

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