Big tech is REALLY BIG

Congress is investigating whether or not big tech has gotten too big. This week 4 of the 5 biggest tech companies were under the microscope as their CEOs testify at a congressional hearing on the matter. The questioning by congress seemingly did not go well but this didn’t stop these stocks from continuing to rally this week buoyed by what were generally strong earnings reports from the companies.

Regardless of congress’s ultimate conclusion, which is likely in the distant future, these five tech giants are huge by nearly any measure including market values that exceed $1 trillion for 4 of the 5 as shown in the accompanying table.

Source: www.YCharts.com

This is not the first time there’s been concern that a small number of companies control too much of the economy. Like the digital revolution we are currently experiencing, 120 years ago our country was going through an industrial revolution. At that time there were giants such as Carnegie’s U.S. Steel and Rockefeller’s Standard Oil. At that time our government moved to breakup what was deemed to be their monopoly powers.

To put today’s big tech into perspective, the combined market values of the 5 companies shown in the above table is $6.7 trillion or equal to 32.7% of our country’s current total economic output (GDP). At the turn of the century in 1900, the 5 largest companies represented less than 6% of GDP. Clearly today’s corporate giants, as measured by this one metric, are far larger than the giants of the Industrial Revolution that were deemed to be too larger.

This Week’s Performance Highlights

Source: www.YCharts.com

U.S. stocks rallied while international stocks were mixed in spite of reports that the U.S. and Europe experienced the biggest drops in economic activity since the Great Depression in the 1930’s. Leading the U.S. markets higher have been and continue to be the biggest tech stocks helped this week by strong earnings and optimism these companies can continue to grow in a COVID world. Also helping propel markets was the Federal Reserve indicating they intend to keep interest rates near zero.

Economic Indicators

Economic activity collapsed in the second quarter with U.S. Gross Domestic Product (GDP) falling at an annualized rate of 32.9%. Service related businesses including travel, tourism, and restaurants were hit the hardest down -43.5%. Helping offset the pullback by both consumers and businesses was a +17% jump in federal government spending. The economy did begin to recover in mid-May after a sharp contraction at the start of the quarter. Current estimates for the third quarter are that the economy will grow by +18% but the surge in COVID cases will likely result in economists lowering these forecasts.

Weekly initial jobless claims showed signs that the recovery in the jobs market is stalling with new claims rising to 1.434 million from 1.42 million the week before. Although this was worse than the prior week it was better than economists were expecting. Continuing claims, including both state and temporary federal programs, declined to 30.2 million from 31.8 million.

Durable Goods Orders, orders for things lasting at least 3 years, rose by +7.3% in June with huge differences among sectors as illustrated in the below graph.

Source: www.MarketWatch.com

Consumer Confidence fell in July to a reading of 92.6 from 98.3 the month before as fears rise about the economic outlook. This month’s reading is still above the pandemic low of 85.7 but is a far cry from the 132.6 level pre-COVID.

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