Peak Apple? And FAAMG As World’s 3rd Largest Country

“I never thought I’d see a $3 trillion market cap,” one incredulous PM said this week, as Apple notched yet another remarkable milestone.

The shares rose 200% in the COVID era (figure below), a feat that speaks to the dynamics I’ve detailed here on countless occasions previous.

I’ll recycle some language that’ll be familiar to regular readers. The services and products offered by America’s tech giants, including Apple, already permeated nearly every facet of daily life. During the COVID lockdowns, digital life was the only kind of existence possible. So, investors sought safety in the oligopoly whose businesses became synonymous with human existence.

The human experience was forced online and interactions were digitized by government decree (i.e., as a side effect of virus containment protocols). Tech companies became even more indispensable as the pandemic reinforced the trend towards a digitized, virtual world. That, in turn, reinforced a preexisting trend in markets.

I’m not sure any of those trends are reversible, but some suggest tighter Fed policy will lead to a dramatic de-rating for the companies that dominate US benchmarks.

If you plot the cumulative balance sheet of the world’s central banks against the market cap of America’s tech behemoths, the relationship appears even more compelling than the same chart using the S&P. Of course, that’s an exercise in question-begging — interpretation is made difficult by the fact that those companies are the S&P (figure below).

In any event, BofA’s Michael Hartnett this week enumerated a hodgepodge of astounding statistics associated with Apple’s meteoric pandemic rise.

Not only did the company manage to add $2 trillion in market value since the onset of COVID, a sum larger than the slimmed down version of Build Back Better, the company’s pre-tax income was $150 billion, stock buybacks were nearly $160 billion, it issued $35 billion in debt at a weighted yield of just 1.8% (so, around where 10-year Treasurys traded Friday) and paid just $21 billion in taxes to the US government.

Meanwhile, Hartnett also noted that FAAMG is the world’s third-largest “country” now (figure below).

If Tesla continues to exhibit the “good news becomes great news by default, and great news becomes extraordinary news” dynamic (to quote JonesTrading’s Mike O’Rourke) that manifested in the company adding one whole Citigroup (or Goldman or Raytheon or Honeywell or Starbucks) and more than 1.5 GMs in a single session on the first trading day of 2022, it’s not wholly inconceivable that FAAMG plus Musk could be the world’s largest “country” within a few years. (Not really. But maybe!)

For BofA’s Hartnett, the “3 Rs” of rates, redistribution and regulation continue to say “Sell Nasdaq.”

If you do (“Sell Nasdaq,” I mean) take the money and see if Olaf Scholz wants to offload Germany for five times sales. He might take it. It’s arguably headed for a technical recession and I hear there’s a virus going around.