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Weekly Market Digest: Massive Gets More Massive

U.S. Markets closed modestly negative for the week as unemployment claims increased for the first time in months, and coronavirus cases continued to grow across the country. Further signaling concerns with the economy, the 10 Year U.S. treasury yield dropped further, and gold reached an all-time high of over $1,900. President Trump also canceled the Republican National Convention in Florida.

Amidst this, professional baseball went live this week, in what is likely a highly appreciated return to professional sports for those so inclined.

Finally, Tesla posted another quarter of profit, allowing it potential inclusion in the S&P 500.

Weekly Returns

S&P 500: 3215.6 (-0.3%)
FTSE All-World ex-US(VEU): (0.1%)
US 10 Year Treasury Yield: 0.58% (-8.75%)
Gold: $1,901.49 (5.0%)
EUR/USD: 1.165 (2.0%)

Major Events

  • Monday – Bayer – producer of the Roundup weed killer, loses an appeal in California Court.
  • Tuesday – The European Union announces a financial recovery package that will result in issuance of consolidated debt – a first for the collection of allied countries.
  • Wednesday – The Environmental Protection Agency announces climate standards for large jet airliners, a first for the United States Agency.
  • Thursday – China launches the Tianwen-1 in its first mission to land a rover on Mars.
  • Friday – U.S. Commerce Department announces that new home sales in the US beat expectations in June.

Our Take: Massive Gets More Massive

This year investors have seen continued explosive price appreciation of some of the largest, and most well-known technology forward companies in the world. The top five stocks by capitalization of the S&P 500: MSFT, AAPL, AMZN, GOOG, FB now account for almost 25% of the S&P 500.

At nearly 25% of the S&P 500, these 5 stocks represent the largest proportion of the index seen in the past 40 years. Today they even outstrip the 1999 peak of 18%. This is a whole new level of big in terms of capitalization (dollars).

This year Microsoft, Apple and Amazon are up an average of 40% while the average stock in the S&P 500 is down 7%. In the last 18 months, these three stocks appreciated by over $2.5 trillion, or roughly the combined weight of the entire energy, materials, and utilities sectors. Each individual company is worth roughly double any of these single sectors on their own. The gain for each of the three companies this year is also larger than any U.S. company has ever been worth before this. Exception: Apple technically hit $830B in November of 2017.

Curiously, this explosion in some of these stocks has not been predominantly driven through earnings growth, but instead through investors’ willingness to pay more for the same level of earnings.

That’s a tremendous amount of information, but what can one take away from it? As these massive companies get ever larger, they will be faced with increased scrutiny and challenges in maintaining their past level of success. Historically, the biggest companies have had trouble keeping up with the market (how many of our parents and grandparents felt rooted in the long term viability of GE, for example?).

Time will tell if each company is able to maintain its market position, but we’d suggest investors take steps to ensure they are not over exposed to any one company, no matter how well they’ve done recently. Even the S&P 500, long thought to be a diversified index, has significant single company risk within it, as a result of the proportions discussed above.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Paul is a Certified Financial Planner® and has been with Personal Capital since they first moved to Denver in 2013. With over a decade of industry experience, Paul’s current role as Vice President, Advisory Service at Personal Capital keeps him focused on a team of financial advisors and their clients.
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This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

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