European Central Bank ends multitrillion-dollar stimulus program
ECB president Mario Draghi speaking at a press conference last year. Photo: Arne Dedert via Getty Images
The European Central Bank said Thursday that it will end its nearly 4-year-long $2 trillion bond buying program.
Between the lines: The ECB’s decision to end its stimulus program comes amid concerns about slowing economic growth (the central bank also cut its economic growth forecasts on Thursday). There's also extreme uncertainty surrounding Brexit and Italy’s budget negotiations. However, at a news conference following the decision, ECB president Mario Draghi said reinvestment of cash from maturing bonds, plus guidance about how long the bank will hold interest rates at record low levels, will provide “support” to the economy.
Big Tech's hold on the stock market might not last
Data: S&P Dow Jones Indices; Note: 2018 numbers are as of market close on Dec. 7; Chart: Naema Ahmed/Axios
The 4 biggest companies in the S&P 500 are tech companies, and even if you go back to the height of the dot-com bubble in 1999, you won't see this degree of tech dominance in the index.
Why it matters: The companies that have become central to our lives and our politics are now also central to our markets.
Microsoft, Apple, Amazon and Alphabet are the biggest companies in the S&P 500. Add in Facebook (No. 6 on the list, right behind Berkshire Hathaway), and the 5 tech giants — just 1% of the companies in the index — account for 14.7% of its total capitalization.
Information technology (like Apple and Microsoft) and communication services (such as Facebook, Twitter and Netflix) are the S&P's tech-heavy sectors, and they make up 40% of the S&P.
Yes, but: Tech dominance waxes and wanes. In 1985, IBM was by far the biggest company in America, responsible for over 6% of the S&P 500 on its own. By 1992, there were no tech companies in the top 10 at all.
Today, the S&P is not beholden to single company risk. No single company makes up more than 4% of the S&P — and hasn't since Exxon in 2008.
Instead, the "bigness" is spread across a small group of tech companies, nearly all of which face threats of regulation.
The bottom line: The S&P is not particularly concentrated now; the top 10 companies always account for about 20% of the total capitalization. What's new is the degree to which tech companies rule the S&P 500. If history is any guide, that dominance won't last very long.
This story first appeared in Axios Markets
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One of the biggest risks to the stock market is the fear of a recession, much more so than a recession itself.
The big picture: Yes there will be a recession, but it's almost certainly not going to be another catastrophic financial crisis, like 2008. It could be very mild.
When will the recession arrive? No one has a clue, and if history is any guide, there will be debate even while we’re already in it about whether there will be one.
What will a recession mean in practice? Recessions are generally bad for employment, but the jobs situation could deteriorate even without a recession. The market is not a snapshot of the economy, and can easily rise during a recession.
There arewarning signs of an economic slowdown, but there's a strong case that a recession could still be several years away.
We're not about to collapse under a pile of debt. Household finances are still healthy. Household outstanding debt is about 79% of GDP. It was 125% at its 2009 peak. And while corporate debt has gotten a bit excessive, BlackRock says that debt levels are still manageable.
A large crash like in 2000 could hurt, but a simple bear market, with valuations down 20% from their high, would have relatively little effect on the economy.
Interest rate hikes have become less of a risk. Fed chairman Jerome Powell has already dialed back his plans for rate hikes in 2019, saying any such hikes will only arrive in response to new data about economic strength. Interest rates are not yet so high as to cause a recession.
Hundreds of thousands of long-term unemployed have re-entered the labor force, often at companies where they learn transferable skills, Axios Future editor Steve LeVine noted yesterday. That may juice the entire economy, creating the conditions for higher GDP growth and "a persistent, positive macroeconomic effect," says Jason Furman, former chief economist to President Obama and now a professor at Harvard.
The bottom line: We have nothing to fear but fear itself.
This story first appeared in Axios Markets
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