As the new crown epidemic is raging, American technology giants are increasingly dominating the stock market, even if these leading companies face accusations of disrupting competition, and some investors worry that a wave of declines triggered by technology stocks is brewing . The top five companies in the S&P 500 are Apple, Amazon, Microsoft, Facebook, and Google’s parent company Alphabet. The combined market value of these five technology stocks currently exceeds $7 trillion, accounting for nearly 25% of the market value of the S&P 500 .
Before the new crown epidemic, this proportion was less than 20%.
The rising stock prices of the five major technology stocks reflect that the United States is increasingly transforming into a technology-driven economy, and the new crown epidemic has accelerated this process. Stacking Amazon goods at home has become a daily sight. People trapped at home watch movies online. , Friends and family warm up each other on Facebook.
But these tech giants also face opposition. U.S. lawmakers accused them of obstructing competition, and Epic Games, the developer of the popular game “Fortnite,” recently filed a lawsuit against Apple.
Some investors worry that if a wave of litigation attacks on technology giants, funds are transferred to undervalued individual stocks, or bond yields rise, the market’s buying interest in technology stocks will be depleted, which will play the role of locomotive in the US stock market this year. Home technology stocks may become the deadly key to US stocks.
“People see these companies as winners, and investors are willing to pay any price for owning them,” said Michael O’Rourke, chief market strategist at JonesTrading. “That is always risky.”
Legal threat
A potential threat comes from a series of investigations and legal actions.
The most recent time occurred on Monday, when a federal judge temporarily prohibited Apple from cutting off all Epic Games developer accounts, pending a full hearing on the issue. This means a partial victory for Epic. The company believes that Apple’s regulations are an anti-competitive abuse of power.
The focus of controversy is mainly on Apple’s App Store. Apple’s stock price has risen steadily thanks to its $46.3 billion in annual service business, and the App Store is the core of this business.
Wedbush Securities analyst Dan Ives said that this decision is “just the first of many upcoming battles.” From a valuation perspective, the antitrust issue is clearly a hidden concern. “
Despite this, Wedbush on Wednesday raised Apple’s target share price in a “bull market” to $700 per share, saying that as many as 950 million iPhones worldwide are facing an upgrade, which is a “one in ten years” opportunity.
However, this week’s court decision on Apple may indicate what the technology giants will face. The influence of tech giants is one of the few issues that can arouse the common interest of US lawmakers from both parties.
Alphabet, Facebook, Amazon, and Apple are facing a series of federal investigations, and they are accused of unfairly defending their market share. A lawsuit may be filed against Alphabet later this year.
” These behemoths dominate their industries and can set global economic rules ,” said U.S. Democratic Senator Richard Blumenthal. “This kind of concentrated power is always dangerous.”
For investors who hope that these giants will continue to achieve strong growth to justify their valuations, these objections are worrisome.
Amazon said it operates in a “competitive” market and cited data from the U.S. Bureau of Statistics that only about 10% of U.S. retail sales are made online.
Apple declined to comment. The company has previously stated that it competes fiercely with Samsung Electronics and other Android device manufacturers in the smartphone market.
Alphabet declined to comment. It has previously expressed competition with Amazon, Microsoft, Comcast, AT&T and other companies.
Investment dilemma
For some investors, these companies represent the dilemma that has plagued them at different times in the past 10 years. Many people find that cutting exposure to technology stocks limits long-term portfolio performance.
The stock prices of the five giants have risen 22% or more this year, reaching a record high, among which Amazon’s stock price has soared by 86%. In contrast, the median overall performance of the S&P 500 so far this year is down 4%.
“The increased market share of these companies… presents a huge potential opportunity to support multi-year growth prospects. “Capital Group’s head of equity investment David Polak said.
However, some people worry that the stocks of these companies are widely held. Once they turn down, they will cause huge volatility in the market.
Goldman Sachs analysts pointed out in a recent report that the S&P 500 index “never relied heavily on the continued strength of the largest constituent stocks as it is now.”
Edwin Jager, head of basic stocks at hedge fund company DE Shaw & Co, said that another risk is that the general economic rebound has boosted the profits of companies that underperformed during the epidemic, which may make their stocks more competitive with technology stocks.
Jager said that, in addition, rising bond yields may make growth stocks less attractive. After the US Federal Reserve (Fed/FED) announced a change in its monetary policy strategy on Thursday, US long-term bond yields hit a multi-month high.
The change in the popularity of large technology stocks may make the stock prices of technology companies that have poor profitability but have previously risen with the market giants been relatively more severely suppressed.
Ed Cole, general manager of Man GLG’s equity division, pointed out that investors found reasons for these stocks based on the belief that “this time the situation is different,” but that “rarely is the case.”
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