There are consequences to untethered growth of FAANG stocks.
And some of the consequences are not economic-friendly or stock-market benign.
"A consensus has formed among economists that the trend toward corporate concentration - in terms of the size of companies and their grasp on profits - is real and may be long-lasting. "The number of papers that are being written on this from week to week is remarkable," said David Autor, a Massachusetts Institute of Technology economics professor who has studied the phenomenon..."Apple and Google combined now provide the software for 99 percent of all smartphones. Facebook and Google take 59 cents of every dollar spent on online advertising in the United States. Amazon exerts utter dominance over online shopping and is getting bigger, fast, in areas like streaming of music and videos."
-- New York Times, "Apple's $1 Trillion Milestone Reflects Rise of Powerful Megacompanies"
With much justification, a small group of stocks, referred to as FAANG, has dominated the U.S. stock market and U.S. economy.
Nearly half of this year's gains in the S&P 500 Index have come from the five component stocks of FAANG (Facebook (FB) , Amazon (AMZN) , Apple (AAPL) , Netflix (NFLX) and Alphabet -- aka Google (GOOGL) ). Indeed, FAANG stocks have fueled much of the near-decade-long bull market since March 2009.
The rise of FAANG has contributed and influenced our domestic economy, in a not-so-good way. Facebook, Amazon, Apple, Netflix and Google's unfettered growth has manifested in declining levels of unionization and contributed to the disruption of numerous industries, thus influencing the general trend of weak wage growth and impacting the rise in income inequality.
As the technology of FAANG has rapidly eclipsed the influence of regulatory supervision and an antiquated antitrust legislation, their sales growth and market dominance have gone nearly untouched by the hand of government.
The business media has rejoiced in Apple reaching a $1-trillion market cap and, not surprisingly, has embarked on a trivial, simplistic and superficial discourse, questioning how much further Apple can rise, which will be the next $1-trillion company, and so forth.
Rather, one should consider the consequences of the concentrative issues relating to FAANG and consider what happened to the U.S. and global economies when our banking industry grew exponentially by leveraging itself into oblivion, proving that it was not too big to fail in 2008-2009.
"A year ago, the big tech companies were basically untouchable; today, they seem not to be."
-- Luigi Zingales, University of Chicago
To me, the existential risk to FAANG is that their growth is dulled by the above realities and the U.S. government takes a more aggressive position toward FAANG's domination. After all, in an age of populism seen both on the political left and the right, assaults by legislators and government regulatory bodies seem likely to intensify.
As well, should the current phase of protectionism continue and the possibility of trade wars intensify even further, it could result in the disruptors being disrupted. After all, nearly 19% of Apple's sales are derived from China. (Note: See yesterday's "Chart of the Day" for more information on the impact of China on U.S. companies)
By contrast, the existential risk to our economy is that their growth is allowed to continue at a helter-skelter pace, with some of the downside factors mentioned in this morning's missive multiplying should the growth snowball be permitted to roll further down the economic hill.
(This commentary originally appeared on Real Money Pro at 7:56 a.m. ET on August 3rd. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen and others.)