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Land of the Giants. The USA is Gulliver’s Brobdingnag.

  • Most of the world’s largest companies are in the USA.
  • The fate of the global economy and stock markets rests on the successes and failures of just a few megafirms.
  • It is possible that the prices of the world’s largest companies have been bid up beyond reasonable and fair levels.

Brobdingnag is a fictional land occupied by giants in Jonathan Swift‘s 1726 satirical novel Gulliver’s Travels. According to Wikipedia, Swift intended the moral relationship between the English and Brobdingnagians to be as disproportionate as the physical relationship. The King of Brobdingnag is considered to be based on Sir William Steele, a statesman, and writer, whom Swift worked for early in his career. 

 

Land of the Giants. The USA is Gulliver’s Brobdingnag.

 

In other words, big is good in Swift’s book. But is colossal even better than big? US stocks have attained super Brobdingnagian proportions. They are the biggest companies in the world. Could it be that “the bigger they are, the harder they fall”? It’s certainly true that the performance of just a few of these colossal companies affects the entire US economy and the stock market, as exemplified in this recent headline:  

 

Land of the Giants. The USA is Gulliver’s Brobdingnag.

 

On this day, the struggles of just two colossal stocks, with combined capitalizations of $4 trillion, moved a market comprising thousands of stocks. Bottom line, the US economy and the stock market is driven by the fortunes of just a few companies. 

FYI, market capitalization is calculated by multiplying the number of outstanding shares by the current price.

The land of the giants

As shown in this chart from Companies Market Cap, the ten largest companies in the world have a total market cap of $15 trillion. Eight of these ten companies are in the US and have a total market cap of  $12 trillion, which is more than half of the $20 trillion US GDP. US companies are indeed colossal.

 

The land of the giants

 

The shorthand for colossal is “FAANG”: Facebook, Apple, Amazon, Netflix, and Google. Four of these five companies are in the top 7 of the world’s largest companies. And only one of the top 7 are not US-based — Saudi Aramco worth $2 trillion.  

Perspective

The following chart provides perspective on the dominance of just a few colossal companies compared to the largest stock markets around the world. 

 

Perspective

 

Here are a few observations from the table:

  • The seven largest companies in the world (“FAANG Plus”) comprise half the value of the thousands of companies in the US stock market
  • These FANG Plus stocks are more than twice as big as non-US stock markets like China, Europe, and Japan.
  • Pick any two stocks in the top 7, like Apple and Microsoft. Their combined capitalization is greater than the stock markets of India, Italy, Germany, Canada, Saudi Arabia, and all of the smaller stock markets around the world.

Conclusion

The success or failure of the US economy and stock market rests with the fate of just a few companies, and by extension, the fate of the world economy also rests with these colossal companies. Investors believe that this handful of companies is safe and that they cannot fail because failure would spell disaster.

But researchers are finding “bargains” in smaller companies whose prices have not accelerated like the colossal. Could it be that safety can be found outside Brobdingnag?

What is your opinion? Is big better and safer, or have prices become obscenely high? Will the giants fall? Can they fall?

 

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