The Trillionaires: Driving the Market in 2023

The year 2023 marked a significant turning point for the S&P 500, with control falling into the hands of a powerful group known as the Trillionaires. But who exactly are these Trillionaires? They are none other than the seven U.S. companies that have achieved a market valuation of $1 trillion or more: Alphabet Inc., Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp., Nvidia Corp., and Tesla Inc.

Their colossal influence over the market cannot be overstated. Collectively, the Trillionaires injected over $5 trillion into the S&P 500's market capitalization in 2023 alone. This astounding figure accounted for nearly 65% of the overall annual gain, bolstering retirement accounts and index-fund statements across the nation. Such immense concentration of market gains is exceptional, with only one other instance recorded by Dow Jones Market Data in 2020 – and it involved the very same group of companies.

However, their impact extends beyond mere market-cap growth –excluding Tesla from the equation. For instance, Nvidia single-handedly put an end to the S&P 500's earnings recession last year, while the layoffs within the realm of Big Tech safeguarded corporate America's record profit margins against the backdrop of escalating inflation rates. In every sense, this select group of companies is responsible for the resurgent market in 2023, and their significance is set to shape expectations for 2024 and the future.

Contemplating the Trillionaires' profound influence on the S&P 500, one might question whether the traditional investment thesis of diversification and reliance on numbers is under threat. To address these concerns, I turned to Deep Dive investing columnist Phil Van Doorn, who reassured me on our new "On Watch" podcast (premiering today) that there is no cause for worry.

The Self-Correcting Nature of the S&P 500

According to Van Doorn, the S&P 500 has a self-correcting mechanism that rewards success. He points out that Nvidia, a dominant player in the tech industry, now occupies a larger portion of the index due to its strong performance in a new category of tech products. However, Van Doorn suggests that if this changes over time and other companies gain market share from Nvidia, their weightings within the index will increase while Nvidia's will decrease.

Challenging the Titans

While this long-term outlook seems plausible, it is important to consider the challenges faced by new rivals attempting to compete against these well-established and well-funded incumbents. The incumbents' entrenched positions make it difficult for new players to enter the market successfully. Furthermore, there may be short-term difficulties ahead. It is worth noting that doubts have been raised about an immediate windfall in artificial intelligence beyond Nvidia. Cloud providers like Amazon, Microsoft, and Google are investing heavily in building out their AI capabilities, and despite generating significant revenue, their profits are being offset by these extensive investments. Consequently, if this trend continues and Big Tech's profit margins are squeezed, Wall Street's expectations of continued margin growth in the AI era may be delayed or unfulfilled.

The Ethical Dilemma

Beyond the financial considerations lie deeper questions related to the societal impact of these companies. With the rise of AI and automation, many companies in Silicon Valley are developing software that will allow other sectors to cut costs by replacing human labor. As these technological advancements lead to job losses, it prompts us to reflect on whether higher profit margins are worth the potential devastation of the labor market.

Unveiling the Trillionaires

Given the profound impact of these companies and the ethical questions they raise, it is fitting to assign them a nickname more suited to their influence than a reference to Hollywood gunslingers. Let us turn our attention to "The Trillionaires" and examine their activities with a critical eye as they navigate the uncertain future of the market. While antitrust laws may not apply directly to the stock market, many argue that these companies are effectively monopolizing the public markets.

By contemplating these issues, we gain a better understanding of the complex dynamics at play and the potential implications for both the market and the economy as a whole. As the Trillionaires continue to reshape industries and drive innovation, it is crucial to remain vigilant and consider the broader consequences of their actions.