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A Spooky October for Large Cap Tech: $550 Billion of Market Cap Vanished


The stock market had a bad day yesterday by any measure (October 10, 2018). Irrespective of the market barometer you track, the data was ugly: the Dow Jones Industrial Average extended its steepest decline since the financial crisis, the S&P 500 index posted more than a 2% decline for only the 28th time since 2011, and the Nasdaq Composite had its worst day since June 2016.

While the sell-off was broad-based, technology stocks have led the market lower in recent weeks with the Nasdaq Composite having the worst start to a fourth quarter since 2008.  And yesterday, the S&P Information Technology sector posted its worst session in nearly 7 years, as defined by percentage decline, last seen on August 18, 2011.  But the world is quite different today versus 2008 and 2011, and while percentage changes are relevant to study to compare time periods and historical patterns, we thought it would be interesting to look at the absolute magnitude of dollar market capitalization that has "vanished" with the sell-off in large-cap technology stocks since the fourth quarter began on September 30, 2018 (through yesterday's close on October 10, 2018).

This is particularly important since large-cap technology stocks represent a substantially larger portion of the broader weighting of the market. Therefore, most investor's exposure to US technology stocks is substantially greater than in 2011, either through direct stock ownership or indirect investments in vehicles like ETFs or mutual funds.

The Rise of Mega-Cap Tech: The $100 Billion Club

Entering October 2018, specifically as of 9/30/18, there were 18 (eighteen) US-based publicly-traded "mega cap" technology companies with over a $100 billion market capitalization, as seen in the chart above.  In aggregate, these 18 US companies had a combined market capitalization of nearly $6.5 trillion dollars!  This is a staggering figure since rough estimates of the aggregate US stock market capitalization is approximately $30 trillion.  Therefore, these 18 companies account for over 20% of the total US stock market's capitalization using back-of-the-envelope math!

In stark contrast, only 6 of these 18 companies had over a $100 billion market capitalization back in August 2011, the last time we saw a market correction of this magnitude related to technology stocks, as measured by the S&P Information Technology sector. You can see these companies on the left hand side of the chart above.  As a reminder, Facebook was not even a public company back in August 2011!

Ouch! $550 Billion of Market Cap Wiped in 10 Days

We thought the following chart was fascinating: the chart is meant to provide a visual aid to compare the one-day decline in technology stocks, as measured by market capitalization, between August 17, 2011 and August 18, 2011 (the last time we saw a similar decline in the S&P Information Technology sector) versus the quarter-to-date performance of technology stocks during Q4 2018 (9/30/18 through yesterday's close on 10/10/18).  The following companies are listed in descending order of market capitalization as of 9/30/18.

Three interesting points:

(1) Nearly $550 billion of market cap was erased for the 18 US technology companies that have over a $100 billion market capitalization between September 30, 2018, and yesterday afternoon (October 10, 2018).   To put this in perspective, this is about 7x times (seven times) the magnitude of total "dollar" loss experienced during the last time the S&P Information Technology sector experienced such a steep decline in August 2011!  Note: the 7x magnitude compares the aggregate market capitalization decline of $551 billion (reference chart above) during Q4 2018 quarter-to-date versus the $80 billion decline during the August 2011 tech sell-off!

(2) The $550 billion of market cap erased for the 18 US technology companies listed above in the past 10 days would represent nearly 35% of the aggregate market cap of the same basket of companies back on August 18, 2011.  This highlights an earlier point, the increased exposure every investor has to mega-cap US technology stocks.

(3) The $550 billion of market cap erased for the 18 US technology companies listed above in the past 10 days is more than the combined market capitalization of Apple, Amazon, Visa, Mastercard, Netflix, and Nvidia, back in August  2011.  Again, this highlights the importance of these companies as contributors to broader declines in market indices such as the S&P 500 and Nasdaq Composite in recent weeks.

What Happens Next?

As of the time of this blog post (10/11/18), the Nasdaq Composite seems to be oscillating towards the downside, but only time will tell whether this is a temporary pull-back or a more meaningful correction in technology stocks.

However, we will continue to monitor financial markets and try to provide objective & data-driven insights generated by Milton's AI system to help you invest better in the US stock market.  We will post these insights through our weekly newsletter and blog posts.

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Also, please feel free to reach out directly at manan@apteo.co with any questions.

About Apteo
Apteo, the company behind Milton, is made up of curious data scientists, engineers, and financial analysts based in the Flatiron neighborhood in New York City.  We have a passion for technology and investing, and we strongly believe that investing is one of the most reliable and effective ways to build long-term wealth.  We build AI tools to help informed investors make better decisions.  

To learn more about us, please reach out to us at info@apteo.co, join our mailing list at milton.ai, or subscribe to Milton’s blog at blog.milton.ai.

Apteo, Inc. is not an investment advisor and makes no representation or recommendation regarding investment in any fund or investment vehicle.

A Spooky October for Large Cap Tech: $550 Billion of Market Cap Vanished
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