The stock prices of Google parent Alphabet and online retailing site Amazon.com are just a few bucks less than $1,000, indicating that the two dominant tech giants are driving the U.S. market higher. The shares of the online retailer hovered around $999 on Friday while the shares of the internet search giant Alphabet hovered around $996.
Should the Main street investors worry about this?
The internet giant Google.com first reached the $1,000 threshold in 2013. The experts of Wall Street -several of them – say that the figure is just a market that catches the attention of people but has little bearing on the future performance of the online retailing site and the search giant or the United States market.
Reaching the share price of $1,000 is surely a big thing for tech companies and according to Dan Seiver, professor of economics at Cal Poly, San Luis Obispo, in California, it is a clear sign of growth, success, and domination. According to S&P Dow Jones Indices, only seven U.S. stocks are trading above that milestone and three of them generate only some trading activity. As of Friday close, the highest-priced stock of the U.S. was Warren Buffett’s Berkshire Hathaway that was trading at $248,540.
Since the current bull market for stocks started in 2009, the e-commerce giant is 1,500% more while it is up more than 30% this year. The U.S.-based e-commerce company is driving its success as a key player in Artificial Intelligence (AI) and as a dominant force in shopping. The online retailer is most popular for its Echo device. It is huge in the fast growing cloud computing business. In the online ad search space, the search giant is the largest player.
5 largest stocks in the S&P 500 accounted for over 1/3rd of 8% gain this year
The major stock indexes like Nasdaq and Standard & Poor’s 500 are weighted by the market value of the company. This means that the more valuable the company is, the more effect it will have on the index, both up and down. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices says that the five largest stocks in the S&P 500 have accounted for nearly one-third of the 8% gain of the large-company index this year.
Amazon is currently ranked No. 2 while Alphabet is ranked No. 5 in the S&P 500. Gary Kaltbaum, president of Kaltbaum Capital Man, says “It tells you how much narrower the market has become and how much influence (Amazon and Alphabet) have on the stock indexes. If this trend continues, it could be a cause for concern, as eventually the market (takes down) the big dogs.”
Michael Farr, president of money-management firm Farr Miller & Washington says that the investment implications of this trend are profound and investors who think that they are getting broad exposure through the purchase of an ETF which tracks the S&P 500 may not know that they are heavily concentrated in a few stocks. Chris Rupkey, chief financial economist at MUFG Union Bank, says that when he hears a stock is at $1,000, he always thinks that it is a bubble no matter what the company.