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The fate of the global economy and stock markets rests on the successes of just a few megafirms that reside in the U.S. But have the prices of the world’s largest companies been bid up beyond what is reasonable and fair?
Brobdingnag is a fictional land, which is occupied by giants, in Jonathan Swift's 1726 satirical novel Gulliver's Travels. Swift intended the moral relationship between the English and Brobdingnagians to be as disproportionate as the physical relationship. The king of Brobdingnag is based on Sir William Steele, a statesman and writer, whom Swift worked for early in his career.
Big is good in Swift’s book. But is colossal even better than big? U.S. 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”? The performance of just a few of these colossal companies affects the entire U.S. economy and stock market, as exemplified in this recent headline:
On this day, the struggles of just two colossal stocks, with combined capitalizations of $4 trillion, moved a market comprising thousands of stocks. The U.S. economy and stock market is driven by the fortunes of just a few companies
The land of the giants
As shown in this chart from Companies Market Cap, the 10 largest companies in the world have a total market cap of $15 trillion. Eight of those 10 companies are in the U.S. and have a total market cap of $12 trillion, which is more than half of the $20 trillion U.S. GDP. U.S. companies are indeed colossal.
The shorthand for colossal is “FAANG”: Facebook, Apple, Amazon, Netflix and Google. Four of those five companies are among the top seven of the world’s largest companies. And only one of the top seven is not U.S.-based: Saudi Aramco, which is worth $2 trillion.
Perspective
The following chart provides perspective on the dominance of just a few colossal companies compared to the largest stock markets in the world:
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 U.S. stock market.
- These FANG-Plus stocks are more twice as big as non-U.S. stock markets like China, Europe and Japan.
- Pick any two stocks in the top seven, 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.
