The recent stock market plunge is being led by megacap companies, especially large technology companies including the FAANG stocks. At this point, it’s not clear how far the correction will go, but we have experienced toppling markets in the past that were driven by the world’s biggest firms.

Top Heavy

I created and maintain the Surz Style Pure® indexes that break the stock market into large, middle and small, and within each of these sizes into value, core and growth.  Morningstar style boxes use a similar approach, and were introduced several years after I launched my indexes. My index definition for large companies is the top 65% of the market. I sort the 5000 companies in the US stock market by capitalization and start adding until I get to 65% of the total capitalization. I use these style classifications in my annual commentary and in the Next Generation of Style Analysis. This might be the last year for my indexes because they need a partner.

My breakpoint for large companies in the US is a measure of the market’s top heaviness.  Its peaks have preceded market corrections as shown in the following graph:

The breakpoint for large companies has recently reached its highest point ever -- $29 Billion. A large U.S. company by my definition is currently above $29 Billion. There are currently 230 U.S. companies that meet this rule, with total capitalization of $23 Trillion, which is 65% of the $35 Trillion total market size.

Keep Your Eyes on the World’s Megacaps

Recent market performance is an alert to watch the megacaps of the world. Here are the world’s 30 largest companies and their returns in October 2018. These companies comprise about 15% of the total world market capitalization. What do your eyes tell you about the future of these firms?

Source: PPCA Inc and Compustat



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.