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The Future Of The Stock Market And The Future Of The FAANGs

Aug. 03, 2018 8:15 AM ETGE, META, AAPL, AMZN, NFLX, GOOG, GOOGL11 Comments
John M. Mason profile picture
John M. Mason


  • The FAANGs constitute about one-eighth of the S&P 500 Index and can exert a major influence on what happens to the overall index, so their future has important implications.
  • The FAANGs are constructed differently than "older" conglomerates like General Electric and so must be looked at differently when assessing their strength and their behavior.
  • The bottom line: we must understand more about the FAANGs and how they function in order to understand their performance, understand their construction so that we don't over-regulate them.

There have been many expressions of concern over the size and influence of the FAANGs…Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Alphabet's Google (GOOG) (GOOGL)…and this concern extends to their role in the stock market.

According to Bespoke Investment, as reported by the Financial Times, "The FAANGs account for about one-eighth of the S&P 500 Index's total value…."

Even more amazing, however, is that "they have provided half the market's growth this year."

In terms of the recent market decline, "Share price falls after disappointments from Netflix, Facebook and the smaller Twitter, have left the broader Fang+ index of technology companies down almost 10 percent from its June high, despite strong results from Apple."

Going further, "tech's share of the wider index is now the highest since the dot-com boom."

But, in the dot-com boom, "Big Tech" was much smaller and was made up of many early stage companies that the opinion writer at the Financial Times refers to as "flimsy companies with no profits."

One cannot compare that earlier time with the present, for "Today's tech leaders have viable models and real earnings."

But, one cannot ignore the fact that the current stock market is so dependent upon just a small number of very large companies, in terms of market valuations. And, these very large companies represent the direction that the "new" Modern Corporation is going.

I have written quite a lot over the past three months or so about the "new" Modern Corporation and it interesting to see that investors are giving the greatest attention to companies that seem to be the primary representatives of this transition to the future.

This "new" Modern Corporation primarily deals in "intangibles" connected with intellectual property. The intangibles are easily integrated into networks that thrive on increasing returns to scale.

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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