Multi-asset specialists tend not be stock pickers. However, with the five largest US technology stocks accounting for 25% of the US stock market by market capitalisation, one has to have a view on how the Big Five will fare going forward.
These companies are colloquially referred to as FAMAG, i.e. Facebook, Apple, Microsoft, Amazon and Google (now known as Alphabet). However positive one might be on the US market; this stance will face a headwind if those five stocks fall. It is against this backdrop that investors are following the antitrust matters in the US.
A 449-page report released on Tuesday 6th October (after market close) by the Democrat-controlled House of Representatives Antitrust Subcommittee amounts to a justification and a road map for what would be the biggest assault on corporate power in the technology industry since the 1990s. The report said:
“By controlling access to markets, these giants can pick winners and losers throughout our economy. They not only wield tremendous power, but they also abuse it by charging exorbitant fees, imposing oppressive contract terms, and extracting valuable data from the people and businesses that rely on them.”
What happened to the FAMAG stocks on the subsequent two trading days (7th and 8th October)?
They were up 2-3%. This begs the question: why did those stocks not crash? The aforementioned report is reminiscent of the initial acts prior to the antitrust action against Microsoft two decades ago, which led to years of relative market underperformance by the company.
One possible explanation for the Big Five’s resilience lies in the comparison between the annual budgets of the regulators who would lead any attack against the Big Five and the net profits of those same companies. The two main regulators are: (i) the Department of Justice Antitrust Division, and (ii) the Federal Trade Commission. As shown in Table 1, the combined annual budget of these two regulators is $500 million. The combined annual net profit of the Big Five tech stocks is $176 billion. So, the Big Five trump the regulators by 354 to 1 on this measure.
Uneven Playing Field
The Big Five have a lot of money for the fight if it comes to that against a potential Biden administration, which is now the favourite to win the US election. Therefore, one could argue that the uneven playing field is giving the market some comfort that they will manage the fight without having to cede too much ground. To conclude, while the battle will be an entertaining one for market participants – assuming Biden does win the presidency – there is reason to remain moderately optimistic on global equity markets.