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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Private equity boss Marc Rowan likes to quip that America has levered its entire retirement system to the performance of Nvidia. With the chipmaker sporting a market capitalisation of more than $5tn, the Apollo Global Management chief executive is not entirely wrong. What’s more, Big Tech’s heft is obscuring emerging weaknesses elsewhere.
According to a recent UBS analysis, 42 stocks are driving the bulk of the S&P 500’s returns; typically, around 100 do. The index is up 12 per cent since the end of March on the back of AI-fuelled tech blue-chips, which also include Alphabet, Microsoft, Apple, Meta Platforms and Broadcom. The equal-weighted version of the benchmark, which in effect turns down the volume on those giant stocks, is up half as much.
The more precarious state of some companies is borne out by a trio of quarterly earnings this week. Take burger chain Shake Shack, which said its like-for-like revenue — which it calls “same-Shack sales” — turned negative in April, as tourism in New York City and other big markets disappointed. An aggressive growth plan amid a softening top line spooked investors, and the shares dropped by almost a third.
The same day, budget gym chain Planet Fitness shares plunged by a similar amount after it missed its growth targets, saying that lower-income consumers were facing “mounting pressures”. That’s easy to believe, amid sustained high interest rates, persistent inflation and petrol prices almost 45 per cent higher than a year ago owing to the Iran war.
Finally there was Whirlpool, the maker of dishwashers and refrigerators. It said a 10 per cent fall in the demand for kitchen appliances in March resembled the sentiment from the global financial crisis. This development was grave enough for the Michigan company to suspend its quarterly dividend. Whirlpool shares are down roughly 40 per cent this year.
The S&P will be untroubled: the three companies together are worth less than $10bn, one-five-hundredth the size of Nvidia. Yet they suggest the appearance of not just a “K-shaped economy” with winners and losers, but two separate economies: AI and non-AI. Potential stock market debuts of AI giants SpaceX, Anthropic and OpenAI later this year would skew these benchmarks further.
A stock index weighted by value, as the S&P is, still makes more sense than an equal-weight index, or a price-weighted index like the Dow Jones Industrial Average. And while AI continues to outperform, who would want anything else? After all, the S&P’s top-heavy nature may be shielding investors from cracks in other areas. If expectations for AI moderate, though, investors will end up with the worst of both worlds.
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