Apple & tech's disproportionate share of S&P index raising eyebrows

Posted:
in AAPL Investors
Tech companies, including Apple, take up a large percentage of the index's value, as well as its growth, leading some observers to question whether Big Tech has gotten too financially powerful.

Tim Cook of Apple


According to The Wall Street Journal, Apple by itself now comprises four percent of the S&P 500's overall value, based on its current market cap of $937 billion. This is the largest percentage any company has had of the index since ExxonMobil in 2008, although IBM reached 9 percent of the S&P in the early 1970s.

In addition, the five most valuable tech stocks -- Apple, Alphabet (Google), Amazon, Microsoft and Facebook -- comprise 15 percent of the S&P, as well as a full third of its increase in market value over the last year.

How the S&P works

S&P this year


The S&P 500 is a stock market index listing the 500 most valuable companies listed on the New York Stock Exchange or NASDAQ. Apple has part of the S&P 500 since 1982. The performance of the S&P is generally seen as an indicator of the economy's overall health.

There's a separate S&P 100, which Apple has been a part of since 2007.

The Power of Tech

These numbers make it clear that Apple and other tech companies are hugely important to the global economy, as well as to investor value. But, as raised by the Journal piece, it also sets up a certain amount of risk, especially in the event of a recession.

It's easy to find Apple, Amazon, Facebook, and Google news. However, much of the reporting lacks perspective on what any given supply chain rumor might mean, causing stock fluctuation on a weekly if not daily basis based on one factoid or other out of the supply chain. Individually, they don't amount to much impact on the S&P, and mostly self-correct given enough time.

The big risk is that, if say Apple is too large a percentage of the S&P, a brief panic about its stock -- as we saw earlier this year over reports of softening iPhone demand, that turned out to be wildly overstated -- could spark a wave of short-selling that hurts the entire index. This leaves the entire S&P open to adverse effects, in case an unscrupulous actor wanted to manipulate the market with false information about one company or industry.

If overall tech company value somehow collapses through some unforeseen tech disruption, or some type of data privacy scandal even worse than those of the last year that significantly erodes trust in large tech companies, it would adversely affect the entire economy. Both the dot-com bubble pop of the late '90s and the real estate debacle of the late '00s proved that the collapse of a single industry can plunge the market into chaos, and an entire economy into recession.

Fortunately, at present, there's no indication that that's anywhere close to happening in this case. Apple, Amazon and the like are established, solid companies, not based on massive debt or ephemeral paper value like so many of the firms who fueled the last two popped bubbles.

And besides -- Apple has 4 percent of the S&P. If it had, say, IBM's 9 percent, it might actually count as disproportionately powerful all by itself.
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Comments

  • Reply 1 of 32
    macxpressmacxpress Posts: 4,544member
    Then maybe investors and analysts should stop manipulating Apple's stock price. How about that? With a single news article or rumbling from China, they can make it appears as if Apple is going out of business tomorrow.

    Why don't we have some kind of regulation on this? Maybe an investigation?
    edited June 15 icoco3TomEleavingthebiggmagman1979StrangeDayswatto_cobrajony0
  • Reply 2 of 32
    SpamSandwichSpamSandwich Posts: 29,770member
    Was the author attempting to be funny on purpose?:  

    The big risk is that, if say Apple is too large a percentage of the S&P, a brief panic about its stock -- as we saw earlier this year over reports of softening iPhone demand, that turned out to be wildly overstated -- could spark a wave of short-selling that hurts the entire index. This leaves the entire S&P open to adverse effects, in case an unscrupulous actor wanted to manipulate the market with false information about one company or industry. ”
    icoco3TomEleavingthebigg
  • Reply 3 of 32
    SoliSoli Posts: 8,229member
    Was the author attempting to be funny on purpose?
    Where is the joke?
    GeorgeBMac
  • Reply 4 of 32
    icoco3icoco3 Posts: 1,448member
    The Nerds are taking over...
    magman1979GeorgeBMac
  • Reply 5 of 32
    lkrupplkrupp Posts: 6,298member

    The big risk is that, if say Apple is too large a percentage of the S&P, a brief panic about its stock -- as we saw earlier this year over reports of softening iPhone demand, that turned out to be wildly overstated -- could spark a wave of short-selling that hurts the entire index. This leaves the entire S&P open to adverse effects, in case an unscrupulous actor wanted to manipulate the market with false information about one company or industry. 
    In other words, business a usual on Wall Street. The phrase “disproportionate share” conjures up the idea that something needs to be done. What then? Break all tech companies up to make the world a safer and more fair place to exist? Stupid investors deserve what they get. Stupid investors panicked and sold AAPL over stupid rumors only to find out their stupidity, fear and greed screwed them up their wazoo. There was an acronym we used to use at AT&T when I worked there. Some people continually  suffer from C.R.I.S.  (Cranial Rectal Insertion Syndrome). If the shoe fits...
    dewmewatto_cobra
  • Reply 6 of 32
    TomETomE Posts: 100member
    The S&P, as well as the other Market Indices, does not need to be manipulated or to use a more descriptive term: COOKED by WallStreet.   I tired of Wall Street manipulating things to make them look good.  Maybe you are also.  

    I do not like to review trends that have been cooked or manipulated.  Let Wall Street sell Stocks, Bonds, Regulated Crap, and realized that their business has changed.

    watto_cobra
  • Reply 7 of 32
    auxioauxio Posts: 1,872member
    Shut the market down and give the money back to the shareholders
    StrangeDayswatto_cobra
  • Reply 8 of 32
    mike1mike1 Posts: 1,710member
    auxio said:
    Shut the market down and give the money back to the shareholders
    Huh?!
    bonobob
  • Reply 9 of 32
    tallest skiltallest skil Posts: 43,399member
    mike1 said:
    Huh?!
    Wall Street, he means.
  • Reply 10 of 32
    Arithmetic.

    Apple is 4% of the S&P. Apple earns internally about 7%. Apple can buy back 10% of the company and get a 7% ROI. That knocks out any major risk to AAPL.

    A 10% hit to AAPL is a .4% hit to S&P 500. How long would this last? Apple will have another $350B to spend on buybacks over the next five years. 

    When AAPL goes above $250, we can talk about risk.
    SoliHyperealityHyperealitymelodyof1974watto_cobrajony0
  • Reply 11 of 32
    auxioauxio Posts: 1,872member
    mike1 said:
    auxio said:
    Shut the market down and give the money back to the shareholders
    Huh?!
    Who says investors don't have a sense of humour?
    edited June 15
  • Reply 12 of 32
    I have to wonder if the Trade War between the US and China and the fact that 'electronic items' are subject to an import tax when coming into the US will affect the APPL earnings and therefore the share price?

    Does anyone know if Apple goods that are made in China will be subject to this extra import tax?
  • Reply 13 of 32
    lkrupp said:

    The big risk is that, if say Apple is too large a percentage of the S&P, a brief panic about its stock -- as we saw earlier this year over reports of softening iPhone demand, that turned out to be wildly overstated -- could spark a wave of short-selling that hurts the entire index. This leaves the entire S&P open to adverse effects, in case an unscrupulous actor wanted to manipulate the market with false information about one company or industry. 
    In other words, business a usual on Wall Street. The phrase “disproportionate share” conjures up the idea that something needs to be done. What then? Break all tech companies up to make the world a safer and more fair place to exist? Stupid investors deserve what they get. Stupid investors panicked and sold AAPL over stupid rumors only to find out their stupidity, fear and greed screwed them up their wazoo. There was an acronym we used to use at AT&T when I worked there. Some people continually  suffer from C.R.I.S.  (Cranial Rectal Insertion Syndrome). If the shoe fits...
    If you are saying "stuppid investors" I can only see that you are clueless about how finance work. For the record I have been working in IT in finace and investments for years now so I am close. All investing is based on speculation and moods. That is not "stupid", but normal. This is how it works. Time to educate yourself on investing in finance.
    edited June 15
  • Reply 14 of 32
    nunzynunzy Posts: 662member
    The biggest risk I see is that the S&P 500 might become less reliable an indicator of the market or the economy as a whole.

    But the blame-Apple-First crowd just likes to complain that Apple is too big and powerful. Typical.
    edited June 15 watto_cobra
  • Reply 15 of 32
    SpamSandwichSpamSandwich Posts: 29,770member
    I have to wonder if the Trade War between the US and China and the fact that 'electronic items' are subject to an import tax when coming into the US will affect the APPL earnings and therefore the share price?

    Does anyone know if Apple goods that are made in China will be subject to this extra import tax?
    There is no “trade war”. There are Chinese tariffs, rampant intellectual property theft and protectionist policies and now there will be additional tariffs on Chinese goods. The playing field is not even. The goal should be no tariffs or subsidies anywhere at any time.
    watto_cobrapscooter63
  • Reply 16 of 32
    Apple will likely never reach $200 a share, while Facebook soars beyond $250 and Amazon goes well past $2200 a share. All the FANG stocks will easily outperform Apple both short- and long-term. Tim Cook has done well as Apple's CEO but he's not even close to Zuckerberg or Bezos when it comes to getting investors crazily desperate to buy Apple stock. It's just amazing how badly big investors want to pay $2200 a share and more for Amazon stock. Apple is already out of steam and Amazon is just getting started. Amazon will reach a $1T market cap long before Apple does.
    Arithmetic.

    Apple is 4% of the S&P. Apple earns internally about 7%. Apple can buy back 10% of the company and get a 7% ROI. That knocks out any major risk to AAPL.

    A 10% hit to AAPL is a .4% hit to S&P 500. How long would this last? Apple will have another $350B to spend on buybacks over the next five years. 

    When AAPL goes above $250, we can talk about risk.
    Apple will likely never reach $200 a share, while Facebook soars beyond $250 and Amazon goes well past $2200 a share. All the FANG stocks will easily outperform Apple both short- and long-term. Tim Cook has done well as Apple's CEO but he's not even close to Zuckerberg or Bezos when it comes to getting investors crazily desperate to buy Apple stock. It's just amazing how badly big investors want to pay $2200 a share and more for Amazon stock. Apple is already out of steam and Amazon is just getting started. Amazon will reach a $1T market cap long before Apple does. It's just my 'opinion' based upon current performance of the stocks I have mentioned.
  • Reply 17 of 32
    sacto joesacto joe Posts: 623member
    Apple will likely never reach $200 a share, while Facebook soars beyond $250 and Amazon goes well past $2200 a share. All the FANG stocks will easily outperform Apple both short- and long-term. Tim Cook has done well as Apple's CEO but he's not even close to Zuckerberg or Bezos when it comes to getting investors crazily desperate to buy Apple stock. It's just amazing how badly big investors want to pay $2200 a share and more for Amazon stock. Apple is already out of steam and Amazon is just getting started. Amazon will reach a $1T market cap long before Apple does.
    Arithmetic.

    Apple is 4% of the S&P. Apple earns internally about 7%. Apple can buy back 10% of the company and get a 7% ROI. That knocks out any major risk to AAPL.

    A 10% hit to AAPL is a .4% hit to S&P 500. How long would this last? Apple will have another $350B to spend on buybacks over the next five years. 

    When AAPL goes above $250, we can talk about risk.
    It's just my 'opinion' based upon current performance of the stocks I have mentioned.
    You don't state it like an opinion, gravy. AMZN and GOOGL are decent stocks, although AMZN in particular is hugely over-valued. At it's present EPS, it would take 279 years for Amazon to equal it's market cap (Netflix 263 years, Alphabet 64 years, and FaceBook 32 years). Apple can do it in 18 without touching a penny of it's $250 B in cash. Of course, that cash is about 5 year's earnings, so technically, it could buy itself back with it's net income and present cash in 13 years.

    But keep that price low, Mr. Market. All that does is give Apple more bang per buck for it's buybacks.

    Did you know that, if you'd bought AAPL back in 2012 and never sold your shares, you'd own 33% more of the company today? Or that, if they buy back the same number of shares over the next 6 years, you'd have doubled your ownership of Apple? That's the power of all that cash that Amazon can never begin to hope to generate.

    Still, maybe you'll be one of the lucky ones to bail on AMZN just before Amazon finally stops growing and the stock crashes around your ears....
    StrangeDayssupadav03
  • Reply 18 of 32
    fastasleepfastasleep Posts: 1,733member
    Apple will likely never reach $200 a share, while Facebook soars beyond $250 and Amazon goes well past $2200 a share. All the FANG stocks will easily outperform Apple both short- and long-term. Tim Cook has done well as Apple's CEO but he's not even close to Zuckerberg or Bezos when it comes to getting investors crazily desperate to buy Apple stock. It's just amazing how badly big investors want to pay $2200 a share and more for Amazon stock.
    What exactly does the price of a single share have to do with anything? Apple would be at ~$1300 right now had the last split not happened.
    StrangeDayswatto_cobra
  • Reply 19 of 32
    StrangeDaysStrangeDays Posts: 5,402member
    mike1 said:
    auxio said:
    Shut the market down and give the money back to the shareholders
    Huh?!
    It’s what Dell said should happen to Apple when doing a financial interview. 
    watto_cobra
  • Reply 20 of 32
    StrangeDaysStrangeDays Posts: 5,402member

    lkrupp said:

    The big risk is that, if say Apple is too large a percentage of the S&P, a brief panic about its stock -- as we saw earlier this year over reports of softening iPhone demand, that turned out to be wildly overstated -- could spark a wave of short-selling that hurts the entire index. This leaves the entire S&P open to adverse effects, in case an unscrupulous actor wanted to manipulate the market with false information about one company or industry. 
    In other words, business a usual on Wall Street. The phrase “disproportionate share” conjures up the idea that something needs to be done. What then? Break all tech companies up to make the world a safer and more fair place to exist? Stupid investors deserve what they get. Stupid investors panicked and sold AAPL over stupid rumors only to find out their stupidity, fear and greed screwed them up their wazoo. There was an acronym we used to use at AT&T when I worked there. Some people continually  suffer from C.R.I.S.  (Cranial Rectal Insertion Syndrome). If the shoe fits...
    If you are saying "stuppid investors" I can only see that you are clueless about how finance work. For the record I have been working in IT in finace and investments for years now so I am close. All investing is based on speculation and moods. That is not "stupid", but normal. This is how it works. Time to educate yourself on investing in finance.
    I worked for MarketWatch.com, one of their lead web devs. We had lunch-and-learns with guest speakers and employees, writers, etc. The investor guys often had this advice — invest wisely, and sit on it. Don’t try to play the market or pretend to be a day trader. Invest long term. 

    Mr. Market doesn’t do this at his own peril, Mr. Market panics and acts on daily and weekly rumors. Yes, this is stupid. So, time to “educate yourself on investing” as you say. 
    edited June 15 SpamSandwichwatto_cobra
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