It’s official – the Dow Jones industrial average at over 26,000 now stands at an all-time high, with the S&P 500 not too far behind.
This indicates that American stocks have weathered a recent policy minefield, as well as slumping values around Christmas, to come back to time-honored historic high values as we approach spring.
However, some analysts point out that there’s more going on in the market than just a boom.
In an article released this morning, Investing Columnist Phillip Van Doorn at MarketWatch talks about a bifurcated U.S. stock market and how certain companies have the most growth and the most power on exchanges.
As the dominant firms that account for nearly 15% of S&P 500 market Share, Van Doorn cites Microsoft, Apple, Amazon, Alphabet and Facebook – five firms in the same sector, and many of which are in direct competition with one another.
“Together, the above companies make up about 15% of the S&P 500’s market capitalization. That dramatic decline in debt to EBITDA underlines how important cash-flow generation has been to those tech giants’ success.”
Van Doorn also cites the insight of Tom Plumb, who runs the Plumb Balanced Fund and analysis on some tech market activity.
“Apple is in the process of trying to establish recurring revenue streams and going form a hardware company to a software and subscriptions company. They have a long way to go, but obviously the most profitable company in the world has the potential to do it,” Plumb said, calling Alphabet and Facebook a “duopoly.”
What does it mean to have an economy so focused on consumer technologies? Some analysts describe the gains of companies like Facebook and Google as ‘fiat’ gains in the sense that they are based on digital services, and not on physical commodities or tangible products. The lay person’s concept of this idea is that if we stopped using Facebook tomorrow, that would take quite a bite out of its value.
However, in the most classical economic sense, we’ve seen markets hit their stride. Watch how growth in the U.S. stock market is divided into sectors and balance your portfolio accordingly.