What the Fed Said (A Month Ago) De-FANGs Big Tech By, D. R. Barton, Jr.

The magnitude of day-to-day and intraday market moves is a bit mind-blowing at the moment.

Yesterday (Wednesday, April 6, 2022) gave us a great case in point. Microsoft (MSFT), which has been the on-again/off-again market capitalization champion over the last 23 years (more on that below), got slammed. And so did the rest of Big Tech—the group formally known as FANG. In fact, MSFT itself dropped well over -3% yesterday losing about $115 Billion in market cap. Said another way – in one day, MSFT lost the equivalent of one Ford (F) plus one General Motors (GM). Wow.

I’m going to touch on what kicked off yesterday’s selloff in Big Tech (and the rest of the market to a lesser degree). But first, the thought about “loss of Market Cap” due to massive market swings triggered me to dig into the recent history of Market Caps. Here’s a quick and largely visual walk down memory lane… (The graphics are provided by the excellent site visualcapitalist.com)

Here are the top ten Market Cap stocks just before the Dotcom bubble:

Things balanced out after that market correction with balanced industry representation:

At the height of the financial/debt crisis, China starts to emerge and energy companies grow:

With oil spiking to triple digits, Big Oil rises, then falls, by the end of 2014 to give way to the climb to the top of the iPhone:

Just before Covid, Big Tech is firmly in control:

And before we look at the top market cap companies on Tuesday (April 5, 2022), let’s talk about why we had the selloff in markets yesterday and the huge drop in Big Tech. The answer is simple: inflation. Why that become so important yesterday is a little more subtle.

The Federal Open Market Committee minutes from the March meeting were released yesterday. They showed that the Fed was going to move “expeditiously” to fight inflation. That means bigger interest rate increases plus maximum monthly buyback of U.S. treasuries and Mortgage-Backed Securities. But most importantly for the big tech companies, it means that interest rates will get higher faster and stay that way for longer. And that means all of those future cash flows are worth less today.

So, the biggest companies in the world lost out yesterday. Here is Tuesday’s list of biggest companies by market cap (thanks to Compound Advisors):

The interesting thing is that most of these biggest companies are at the top of the list because they also MAKE THE MOST MONEY:

So, in my next article, we’ll take a look at some potential ways to play these rocky pullbacks in the companies that are still bringing in tons of profits.

As always, please send me your thoughts and comments. I always love to hear them and I answer as many as I can! Email them to drbarton “at” vantharp.com

Great Trading and God bless you,

D. R.

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