4/17/2020 - Trading Lab Morning Email

The following chart is as remarkable as it is disturbing:

The levels of inequality in society and in corporate America has never been greater than it is today. Think about it, is there any part of your life that the above 5 companies (Apple, Amazon, Facebook, Google, and Microsoft) don't touch in some way, shape, or form?

These 5 companies now constitute more than 20% of the market cap weighting of the S&P 500 (an index of the 500 largest publicly traded companies based in the United States). Never before have so few owned and dominated so much of American/global commerce, and the COVID-19 crisis has only served to exacerbate this growing imbalance.

Short of government anti-trust intervention of some sort it's difficult to envision how this trend changes anytime soon. These companies have all of our data, they know where we sleep, they know where we walk, they know where we like to shop, and who our friends and family are. They have become so powerful that not submitting our information and payments to them makes our life, in one way or another, not quite as easy/simple as it could be. This is the price we pay to submit to the corporate dominance of FAAMG in the year 2020, and it has made the founders and CEOs of these companies billionaires.

I want to mention one more topic this morning. It is more important than ever to tune out the noise and to not fall into lazy first-level thinking. Here are some examples of first level thinking in markets:

"The jobs number is awful, the stock market will be down today!"

"Crude oil is below $20, we must be in a depression" <~~~ Ignoring the fact that the June oil futures contract is above $25, and farther out on the curve oil is above $30.

"They are printing trillions of dollars, gold is going to $20,000 an ounce!"

"The S&P 500 shouldn't be up today, bank earnings were bad this morning."

The market is a clever, cruel beast that doesn't care what you think. I repeat, it doesn't give a damn what you think should happen. That's why ingesting news...(read noise)....can be so costly in terms of being able to think clearly. I'm guilty of it, just as much as you are. However, I have learned over the years that when markets are open I want to consume as little noise as possible.

Remember that financial markets are like a chess game. The market is thinking several moves ahead. That means that if you are looking backwards, or only seeing one move ahead you are sure to always be several steps behind.

One thing you might want to pay attention to is when you begin seeing signs of emotional extremes among market participants. One of my favorites is when people extrapolate recent market price trends far into the future and then take it to a ridiculous extreme; talk of $20,000 gold OR negative oil prices are pretty extreme and may indicate those markets are getting overextended in the short term. 

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