What Happened
We all remember when news of the coronavirus hit and it became apparent that many businesses were going to have make significant cuts or shut down. We all remember getting the “Stay At Home” orders from the government. We all remember learning how to cope with our new normal of Zoom calls, masks, and isolation.
The pandemic has had significant effects on all areas of our lives. One of the most significant impacts of the virus has been the consolidation of power in two especially important parts of the economy: the stock market and the government. In both areas, the virus has caused power to shift even further to the entities that were already powerful before the virus hit. Time will tell what the long-term consequences of this will be, but today we will take a look at the impact the coronavirus has had on stock market leadership and governmental control.
Impact on Stock Market Leadership
Take a look at these numbers:
*as of market close 6/3/20 from MarketWatch.com
One clear takeaway is how well the NYSE FANG+ Index has performed despite one of the worst economic collapses in history. The NYSE FANG+ Index is an index designed to represent a segment of the technology and consumer discretionary sectors consisting of highly-traded growth stocks from companies such as Facebook, Apple, Amazon, Netflix, and Alphabet's Google. The 24.41% growth of this index year to date is extremely high given that the S&P 500 Index, which represents the top 500 publicly traded companies in the US, is down 3.34% for the year and the Russell 2000 Index, which represents around 2000 small company stocks, is down 12.97% for the year.
This shows a huge disparity in how the biggest companies in the US (represented by the NYSE FANG+ Index) have been able to overcome the pandemic as compared to the smaller companies. This disparity represents a consolidation of power by these huge companies. While these companies were already the biggest and most powerful companies going into the pandemic, it seems clear that the pandemic has allowed them to extend the distance between them and the rest of the pack.
Impact on Governmental Control
Our governing bodies, whether at the federal, state, or local level are tasked with stepping in for the greater good of their citizens when necessary. When natural disasters occur or pandemics sweep through the nation, we look to our government to help us recover and return to normal. This coronavirus pandemic has not been an exception to this.
One of the most significant ways that our governing bodies have intervened is through the “Stay at Home” orders which forced most people to remain at home except for essential activities. While undoubtedly necessary to slow down the spread of the virus, this is a huge act of governmental power. Before the coronavirus, it was hard to imagine it was possible for the government to force us inside our homes. While these orders represent only a temporary consolidation of power, it will be interesting to see if governing bodies quickly relinquish power back to their citizens or if this will impact us for years to come.
Takeaways
The coronavirus pandemic has had unprecedented impacts on our lives. Some of these impacts are more obvious and some lie beneath the surface a bit. Some of these impacts are temporary and some of these impacts will likely last for years. The shift in the balance of power will be an especially important impact to keep an eye on. In the stock market, we have seen the 5 of the largest US companies by market capitalization further consolidate their power during the coronavirus. In our government, we have seen more demonstrations of power than we have seen in years.
As we start to return to normal, we will keep our eyes on the balance of power in these areas. Will power continue to shift to those who already have it, or will we see a return to the balance we saw pre-pandemic?
We will revisit these questions in future blogs. As always, let us know if you have any questions or comments.
Stay well,
Alex
The views depicted in this material are for information purposes only and should not be considered specific advice or recommendations for any individual. All investing involves risk, including the potential for loss. Indices are unmanaged and cannot be invested into directly. Past performance is not indicative of future results.