If you still have doubts about the power of the big names in this market, Friday’s performance should put any doubts to rest. Meta Platforms rose $29.95 (5.8%), bringing its gains this year to more than 52.8%. Amazon rose $2.41 (1.2%), bringing its gains to about 31.6% in 2024. Alphabet rose $4.78 (2.5%), bringing its year-to-date return to more than 36.6%. Microsoft rose $6.79 (1.4%), bringing its gains to 24.8% this year. Apple rose $4.79 (2.1%), bringing its gains to 17.9%. These mega-cap tech stocks in the portfolio are just phenomenal gainers. Sure, chipmaker Nvidia is still adjusting to a 10-to-1 stock split, and its shares fell a few dollars on Friday. But the stock is still up 154.1% for the year. By comparison, the broader S&P 500 index rose 15.7%, while the more tech-heavy Nasdaq Composite Index rose 22.2%. Let’s put aside for a moment that we also own Eli Lilly. The pharmaceutical company’s shares rose $16.47 (1.8%) on Friday, bringing its total gain this year to 57.4% – despite vicious and unprovoked political attacks by President Joe Biden. Biden, who has waged a not-so-overt war on the pharmaceutical industry since taking office, on Tuesday called on Lilly and Novo Nordisk to lower prices on weight-loss and diabetes drugs. This is a victory for the big tech companies against everything else in the world. Is the rally due to the strength of recent profits or the confidence that profits will not disappear as gross domestic product (GDP) slows and inflation falls at the same time? On the latter, the June Consumer Price Index (CPI), due on Thursday, could be decisive. The answer is that these tech giants (and Lilly, with its explosive GLP-1 franchise that far outperforms its competitors) are considered winners regardless of the direction of the economy. They are saints. Plain and simple. Unlike the sports world, Wall Street is a place of assumptions. For example, we might think that there are elite teams in the NFL in all its purity. We attribute their success to management putting the best players on the field and making the right moves. We don’t say they have the winds of the earth blowing. On Wall Street, we have to attribute profits to something more than the skill of management putting the best product on the field and making it work. We don’t say, “Apple’s business is doing much better than we thought it would.” Apple can transcend the economy because its consumer business is doing so well that its peers, not its competitors, are going to shower Apple with AI that they’ve spent billions of dollars building. The only question is, which AI company will pay Apple the most to get access to the 2.2 billion active users of its devices? Because enterprises aren’t big enough to sustain their dominance. These are companies that invented great franchises that could handle the obstacles of a slowdown: YouTube, Reels, Amazon Web Services, Copilot. There are a few others. Costco and Walmart have both risen about 34% this year, capturing the frugal consumer zeitgeist amid the economic crisis. And of course there’s the ever-spirited Tesla, the immortal invention of Elon Musk, who has been brought back into the black by a cult-like cult of personality. Who would doubt his alchemy? But the claims, the endless claims, are almost novelistic, more fantasy than fact, discrediting the ability of the best companies to get even better. The claims come back again and again to one main point: that these companies couldn’t dominate without something bad happening to the stock market. It’s no wonder there’s no faith that the rise of these stocks is actually good for the market. Have you ever heard the voice say, “These stocks saved us?” No, it’s all about the impossibility of the ability to dominate without some decay, maybe a lot of decay. Here’s another factual statement: These phenomenally profitable companies are companies that never stop inventing. There is never a moment when something new isn’t working. Their stock prices are above average because their businesses, which are based on innovation, not financial engineering, are out-innovating others. Is it really a coincidence that the most inventive pharmaceutical companies match the performance of these mega-cap, less capitalized companies? I don’t think so. Disparaging the market based on the progress of a few saints is twofold. First, these stocks are ridiculously overvalued. Second, no sane person would invest in a market dominated by a few stocks. Let me argue these two points. The first is somewhat true. How did Apple get such a high multiple (34x earnings) when 23x is the norm at best? This is a consumer market winning out over the corporations. But the mid-20x multiples for Alphabet and Meta don’t seem all that expensive. How much should we pay for the best companies like Amazon and Microsoft, other than 2x market multiples or a little bit more? I don’t know. Maybe it’s cheap at next year’s numbers, like Nvidia. Or maybe we just don’t know how to value it, so we’re just paying max, like courtside NBA tickets or 50 yard line boxes. To me, the much more important question is why does it matter to the market as a whole? What would you expect when you’re putting most of your new money into index investing? Every new dollar is 25 cents or more to these companies. You want companies to get smaller? Then index investing needs to get out of the market. But we all acknowledge that most of the index investing is sticky or glued to the S&P 500. So what’s going on?Why don’t we complain that passive investing is the culprit, rather than non-existent giant worship? You know my bias. These are the best, in good times and bad. But their incredible market caps have more to do with “capital inflows” than some kind of extraordinary scenario that will be resolved by events or Treasury auctions like this week’s 10-year and 30-year bonds. In that sense, I had to take a “stop complaining” view on the strength of these stocks so that I wouldn’t feel compelled to sell them. You could say that the strength of the club is its insistence on not being bound by false dogmas about these stocks. The circus doesn’t stop. Let’s strap ourselves to the mast for tomorrow’s “unsustainable” round. I ask myself, once again, why is the club extraordinary? Why should so many people be driven out of the market because of concentration, when it can be justified by invention and capital flows? Isn’t it enough to say that intellectual acuity alone can justify dominance, and that dominance means a bigger piece of the growing pie, even if some of the multiples become disproportionate to the returns? So, again, the temptation to take profits will be there. And once again, one must resist the temptation to be justified by fictitious theories of markets collapsing under the weight of giant corporations and ETFs like Samsung. Or ask yourself: Hasn’t this complaint been on the front burner for years? Has it ever been right before? That ends the defense of the status quo. Let the prosecution begin the accusation anew, perhaps with some new theory, or with nothing more than the theory that “this will never last.” As for the counterargument, I say that not only will this continue, but other investors will join in. (See here for a complete list of Jim Cramer’s charitable trust stocks.) Subscribers to Jim Cramer’s CNBC Investment Club receive trade alerts before Jim makes any trades. Jim buys and sells shares in his charitable trust portfolio 45 minutes after he sends out his trade alert. If Jim talks about a stock on CNBC television, he waits 72 hours after issuing his trade alert before executing the trade. The Investment Club information above is subject to our Terms of Use and Privacy Policy, as well as our Disclaimer. Receipt of any information provided in connection with the Investment Club does not create any fiduciary duty or liability, and no particular results or benefits can be guaranteed.
A composite photo from a Reuters file shows the logos of Amazon, Apple, Facebook and Google.
Reuters
If you’re still doubting the power the biggest stocks have over this market, Friday’s performance should put your doubts to rest.
