For the past two days, the stock market has tumbled after a string of record rallies driven by Facebook, Apple, Amazon, Tesla, and other tech companies. While some are speculating about what is causing the tech selloff, others are rationalizing it as the market returning to “normal.” The market’s not normal, however.
Yesterday, Apple, which saw a strong surge after its Monday morning stock split, lost $180 billion in a single day. As Barron’s noted, this is the most money that any company in history has lost in one day, which is a gobsmacking fact on its own. Now, consider this: even after losing the most money in one day ever, Apple still had a valuation well above $2 trillion, a truly unfathomable amount of money. And despite that massive loss, the company's stock was still up 65 percent at market close from January 2020 and up 127 percent from that time last year.
Facebook, Amazon, Apple, Microsoft, and Alphabet dominate the stock market in ways that don’t seem to make sense. Each of these individual companies eclipses the stock indexes for companies with large market capitalizations in some of the richest countries in the world. Alphabet is larger than Switzerland’s SMI Index, Microsoft larger than Germany's, Amazon larger than France's, and Apple larger than the UK's. Together, with Facebook, they’re close to a quarter of the S&P 500—a far cry from the 11 percent they owned two years ago, if you swapped Microsoft for Netflix. The tech stock market’s value this year was pegged at $9 trillion, larger than the entire European stock market.
All of this has led some to conclude, even before the sell-off, that we are in an unsustainable tech bubble. Atlantic writer Derek Thompson made a convincing argument, however, that we are instead in a deflationary period for companies that billed themselves as technology companies despite fitting more squarely in fields like real estate or taxi service to supercharge valuations (WeWork, Uber, Lyft, Peloton, etc.).
As Thomson writes, one key piece of evidence is that "in the dot-com bubble, public investors got hosed. Today, it's public investors that are doing the hosing." In the dot-com bubble, unprofitable and unsustainable firms collapsed in value long after the public markets went all in. Although publicly-traded stocks such as Apple are tumbling, overall collapses in value are happening much earlier—sometimes before going public—and as a result private, not public, investors are eating most of the losses. He also points to the fact that enterprise tech (business-to-business operations), not consumer tech, is doing well and securing most of the profits and securing sustainable growth.
There’s a big hole in this narrative, however: namely, the real economy has not even entirely recovered from the Great Recession. It’s not clear why we should regard enterprise companies experiencing consistent growth and profits as a sign of a healthy market when large chunks of the country are still feeling the effects, and considering that this failed recovery fueled the rise of the gig economy—home to the scores of consumer “tech” unicorns that raised fears of a bubble in the first place. Or the fact that those consumer tech unicorns also took advantage of global monetary environments to secure multi-billion dollars debts fueling startups, mergers, acquisitions, and more.
Further, the Financial Times revealed on Friday that Softbank CEO Masayoshi Son has spent the last month buying billions of dollars worth of tech stock options. In other words, the stock market didn’t rally because of strong fundamentals from enterprise tech, but because of one billionaire’s bet. The same billionaire who single-handedly accelerated the rise of debt-financed consumer “tech” unicorns was pumping up the tech sector for his own gain.
Even if you don’t think we are in a tech bubble, the alternative would still be just as concerning. Ours is, at the very least, a lethargic economy where monopolistic tech giants and their various ecosystems of clients thrive.
Individuals and corporations are left to take on massive debts or engage in dangerous speculative schemes to survive in the former’s case, and thrive in the latter’s case. This all might inflate (or crash) the stock market’s numbers. Who cares? Whether or not it’s a tech stock bubble, the fact remains that while 90 percent of the stock market is owned only by the richest 10 percent of Americans, that bottom 90 percent will suffer the brunt of pain and misery that follows. Whether the stock market sinks or rallies, millions of people are out of work, facing food insecurity, or risking eviction from their homes, as we face yet another global recession.