Bloomberg ETF analyst Eric Balchunas said repeated concerns about narrow leadership in U.S. equities do not automatically signal a problem for investors. Citing market data from the past 100 years, he said roughly 4% of stocks generated all net wealth creation in the U.S. stock market, while about half of companies underperformed U.S. Treasuries over the long run. In his view, that shows equity returns have long been concentrated in a small group of companies rather than broadly distributed across the market.
Balchunas also argued that today’s large-cap technology firms differ from traditional large corporations because they have built vast operating systems through acquisitions. He said Microsoft and Google have each acquired about 270 companies. On that basis, he said investors should not view the so-called Magnificent Seven as seven isolated listed companies, but as business systems made up of hundreds of firms behind the scenes, joking that they may be closer to a “Mag 700.” He added that if YouTube were listed as a standalone company, his estimate suggests it could rank among the top 20 constituents in the S&P 500 by market capitalization.
On Oct. 9, Bloomberg ETF analyst Eric Balchunas said recurring concerns over narrow market breadth in U.S. equities do not necessarily mean investors should be alarmed.
Citing stock market data from the past 100 years, Balchunas said only about 4% of stocks accounted for all net wealth creation in the U.S. market, while roughly half of companies lagged U.S. Treasuries over the long term. In his reading, stock market returns have long been heavily concentrated in a small number of companies.
He also said the large technology companies currently driving U.S. equity gains are different from large corporations in the traditional sense. These firms have assembled broad business systems through extensive acquisitions. Microsoft and Google, he said, have each acquired about 270 companies.
For that reason, Balchunas argued that investors should not judge their market influence only by looking at the name of a single listed company. Instead, he said the so-called Magnificent Seven should be seen as commercial systems made up of hundreds of businesses behind them, jokingly calling them the “Mag 700.”
Balchunas added that if YouTube, owned by Google, were listed independently, his estimate suggests it could rank among the top 20 companies in the S&P 500 by market capitalization. He said the scale and reach of these businesses extend well beyond a single corporate entity, which may help explain why U.S. stock indexes can remain driven by a small group of large technology names while still resting on a broad base of business assets and operations.
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