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Comment by quitit | Hacker News Reader

It's a bigger factor than what many realise. Removing top tech performers from S&P drops its performance to less than half, and that figure itself is around half of the historical S&P average.

Annualised 5 year performance of S&P was around 15% (12% is the long term average). Taking away FAANG reduces it to just 7%.

Worth stating is that these companies are also a significant source of unwanted volatility.

The performance of US tech companies are such a run away success that economists remove them as outliers to get a better picture of how things really are.

We basically have two economies, they will certainly only further diverge.

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> We basically have two economies, they will certainly only further diverge.

a very interesting take. Given that europe completely failed in developing FAANG-like companies, i wonder how the US economy with the FAANG-like top tech performers removed compares to it.

Of course this removes a significant part of the US economy and is not fair, but it's still interesting.

My core criticism of the EU developing their tech industry are centered in two issues:

1. Allowing their innovations to be bought out by large US incumbents. Much of the latest and greatest IP started in Europe, and is now firmly held by US-controlled businesses who are using it to make bank.

2. Generally having policy which either directly or indirectly prevents large or competent industry from forming in the first place. I don't mean environmentalism or workers rights, but rather issues that the USA has well handled: such as access to capital, eliminating protectionist strategies which prevent mediocre or floundering companies from being out competed by startups, and what appears to be a total fear of trialing new approaches/smoothing out barriers to entry.

>Worth stating is that these companies are also a significant source of unwanted volatility.

Unwanted for people holding S&P over a short timeframe, maybe, but volatility is absolutely necessary for a healthy economy. Volatility in the market represents uncertainty, and new business models and technologies bring uncertainty. A market with continuous low volatility is a market in which everything is very predictable, and hence no big innovations are happening (because it's always hard to predict how/whether big innovations will work out, so such things entail volatility).

High concentrations of the stock market has been around since forever:

> Jason Zweig once shared that AT&T made up 13% of the U.S. stock market in the early-1930s. General Motors was 8% of the market in 1928 and IBM had a 7% weighting in 1970 (it was close to that again by 1985).

* https://awealthofcommonsense.com/2023/05/concentration-in-th...

> High concentrations of the stock market has been around since forever

That's useful and interesting, but the importance of the topic today lays in rate of growth, rather than the % market cap against the greater stock market.

Removing FAANG drops the rate of growth to roughly half. This indicates that tech companies are pulling up the average rate well above the historical average. The fact that many of them also possess very large market caps underlines the point that these businesses are unfathomably large in comparison to other business sectors.

It's also worth noting that the historical averages includes the effects of AT&T, GM, IBM, et. al.

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