The five biggest technology companies account for almost one-quarter of all stock market gains this year. However, political threats rumble on in the background. Is Trump becoming a threat?
The prices of American technology stocks on Wall Street continue to skyrocket. On Friday, after online retailer Amazon, internet conglomerate Alphabet, and software corporation Microsoft reported stronger quarterly figures than had been expected after the closing bell on Thursday, securities on the electronic stock exchange NASDAQ climbed significantly. The market price of Amazon alone was up 13 percent. Thus, the high flight of this industry continues, an industry which was the biggest driving force behind the American stock exchanges this year.
The market prices of the 500 technology stocks tracked by the large American stock index, Standard & Poor's 500 Index, have risen by around 35 percent on average since the beginning of the year. In doing so, they have grown twice as much as the S&P 500, which gained 15 percent in the same period. In addition, the five largest technology securities by market value have an immensely strong influence on the trends of the market as a whole, given that they also head up the general list of Wall Street heavyweights. Each one of the five securities—Apple, the Google parent corporation Alphabet, Microsoft, Amazon and Facebook—have a market value of more than $500 billion. With a market capitalization of more than $800 billion, Apple is playing in a league of its own.
No Consequences So Far, Bar the Verbal Skirmishes
For the meantime, the five are all bigger than Berkshire Hathaway, the conglomerate with more than 80 subsidiaries and security holdings, which is led by star investor Warren Buffett and is worth over $100 billion. The company, which also owns 2.5 percent of Apple shares, only ranked sixth behind Amazon and Facebook, with its most recent market value at $465 billion. Perhaps the dominance of technology stocks is best illustrated by this comparison: With its recent market value of more than $700 billion, Alphabet is twice as valuable as the huge oil corporation, Exxon Mobil, which topped the list of stock exchange giants at the beginning of the decade.
According to data from the index provider, S&P Dow Jones Indices, the five leading tech giants contributed almost a quarter of the gains in the S&P 500 this year. Wall Street stock analysts predict further growth in this sector’s gains. Even before seeing the quarterly figures from Alphabet, Microsoft and Amazon, pundits for businesses in the information technology sector were predicting a profit acceleration of nine percent for the third quarter. Alongside the energy industry, technology companies would thereby make up the second largest contribution to gains in the S&P 500. With information from the data provider Factset, analysts are currently calculating an average profit acceleration of only 1.7 percent for companies in the S&P 500. At the moment, any threat of a headwind for the dominant technology stocks appears to largely stem from regulatory authorities. Some analysts are worried that these businesses could attract more attention from Donald Trump’s administration. Though Trump has repeatedly attacked Apple and Amazon on Twitter in the past, there have been no consequences outside of these verbal skirmishes.
Penalty Tax for Chinese Products?
However, according to analysts’ estimates, these multinational corporations should, in fact, benefit from the planned tax cuts, if the Republican majority in Congress can unite over a mutually proposed bill. Trump’s legislative initiatives thus far, including attempts to abolish the health care reform of his predecessor, Barack Obama, have come to naught, thanks to resistance from individual senators. Trump moved for tax reform at the end of September which would, if approved, see a reduction in the tax rate for corporations’ profits from 35 to 20 percent. Businesses would also be able to move profits generated abroad back to the United States at a lower rate of taxation.
Nevertheless, Jason Trennert, market strategist at the investment firm Strategas, believes that technology businesses could soon take further flak. “I think in the last administration, the Obama administration, financials and energy were seen as, I don't want to say the bad guys, but certainly they were under much more regulatory scrutiny and tech was seen as virtuous,” Trennert said. “Now there are real questions where those positions may be turning, where energy and financials are be seen as the solution for this administration in terms of getting growth going.” Trump is pushing for less regulation in these economic sectors. However, a question mark is hanging over the companies’ market power in their respective fields – advertising for Facebook and Google, and retail for Amazon. Until now, pressure has emanated above all from Europe. The EU Commission imposed a cartel fine of 2.4 billion euros ($2.79 billion) on Google in June. The cartel watchdogs took it as given that Google had abused its dominant market position in a price comparison service.
During his campaign, Trump attacked Google for its production abroad. He accused Amazon founder Jeff Bezos of using the Amazon-owned newspaper, The Washington Post, to lower Amazon’s taxes. Trump also promised to impose a penalty tax on imports from China, in addition to other Apple and Microsoft production locations. In return, leading representatives from the technology sector have opposed the government’s harsh immigration politics and Trump’s whitewashing of violence by the far-right. Trump’s rhetoric has not yet been reflected in regulatory changes for the technology sector, and stock brokers on Wall Street are consequently still optimistic.