Adding up the balance sheets of the 5 largest central banks (FED, ECB, BoJ, PBOC and BoE) we come to just over 32 trillion dollars. When expressed as a percentage of global GDP, that figure will end in 2021 at around $ 95 trillion, or around 33%. Parallel to the growth of central bank balance sheets, a similar inflation has been seen in the main equity indices.
As it claims Peter De Coensel, CEO of DPAM, it is often read that they both fed each other and moved in synchrony, but that would be too simplistic an explanation. The model of successful businesses has changed over the past 10 years. They have similar characteristics in that they thrive and operate as digital ecosystems that bring buyers and sellers together. This type of companies and business models, which are characterized by low marginal costs and benefit from the effects of the network, are increasingly diversifying.
To date, there are five stocks (Apple, Microsoft, Google, Amazon and Tesla) which represent approximately 25% of the market capitalization of the S&P 500.
Tesla has overtaken Facebook in recent weeks by joining the select club of 1TRL$ Club and also in this period Alphabet has gone up to $ 2 trillion in valuation. Obviously, if we consider platform-based business models as a sector in its own right, we are facing a new universe of public investment. Indeed, the composition of indices is changing rapidly and this also affects their risk-return profile. Adopting 20th century valuation models for 21st century stock indices could be a shortcut to a constantly changing reality. For this, more efforts are needed to better understand current market events and their valuations.
The Nasdaq is no exception, on the contrary …
Even more evident is the dependence on a few stocks of the fate of the Nasdaq 100. The technology index sees i first seven titles (Microsoft, Apple, Amazon.com, Tesla, NVIDIA, Alphabet and Meta Platform) count for more than 50% of the entire index. Microsoft and Apple alone account for over 21%.
Giants that bring some distortions and for example in the session of November 18, with the Nasdaq 100 jumped by more than 1%, 50 stocks were positive and 50 were negative. And to drive are the usual names, Apple (3.15%), Amazon (+ 4.6%), Nvidia (+ 10.6%) and Google (+ 1.5%).