How Two Tech Giants Masked Banking Crisis : Deep dive into US market

Picture this: the S&P 500 index, a reflection of corporate America’s health and often associated with economic performance, is a massive, swinging seesaw. On one end, there’s Apple and Microsoft, two humongous tech giants. On the other end, well, there’s pretty much everyone else.

The fate of this seesaw — or the S&P 500 index — which people use to check if corporate America is feeling healthy or sickly, is heavily swayed by just two companies — Apple and Microsoft. So, when you put your money into the stock market, like through a 401(k) or pension plan, you’re pretty much tying your financial lifeline to these two big players.

You see, more than $15 trillion of assets (that’s 15 followed by 12 zeros!) are connected to the S&P 500 index and according to S&P Dow Jones Indices, with more than 10 cents of every dollar allocated to the broad index flowing through to Microsoft’s and Apple’s market valuation. The way the index is built, Apple and Microsoft have a huge say in how it performs. It’s like they’re the two big kids on the playground, and everyone else just follows their lead.

Sometimes, this can cause a bit of mischief as this means that the two companies together can sway the direction of the broad market, sometimes masking turmoil that has taken place underneath. Let’s say there’s a financial earthquake, like when two regional banks in the U.S. failed and a European investment bank needed saving. But instead of the S&P 500 index taking a nosedive, it actually went up by 3.5 percent! Why? Well, our two big kids, Apple and Microsoft, were busy playing with artificial intelligence toys and didn’t really care about the banking crisis. So, they kept the seesaw steady and even lifted it a bit.

The way the S&P 500 index is designed makes these tech giants even more influential. If you put Apple (2.4 trillion) and Microsoft (2.1 trillion) together, they would be the third-largest sector of the index, right behind tech and healthcare. That’s like having two kids on the playground who are so big, they count as their own team!. They would be larger than the energy sector and roughly the size of the financials sector.

Even during the craziest moments, like on Monday, March 13, when the government took over Silicon Valley Bank and Signature Bank, panic was everywhere. A bunch of regional banks had their worst stock market day ever. First Republic Bank’s value dropped over 60 percent! It was so wild that trading for many stocks stopped while stock exchanges tried to control the chaos.

Meanwhile, outside the stock market, government bond yields went bonkers, oil prices dropped, and the dollar weakened. It was clear that everyone was worried about the economy. But guess what? The S&P 500 stayed mostly positive that day and only dipped 0.1 percent. Why? You can thank Microsoft and Apple. Their stocks rose enough to make up for a 15 percent drop in the entire regional banking sector.

This month, S&P sought to rebalance the index again, moving a handful of large tech-oriented companies — like Visa and PayPal — into the financials sector, but further entrenching Apple and Microsoft’s dominance as the two tech heavyweights.

Now, sometimes these big kids don’t always win. In 2022, they had a rough time, and the S&P 500 index fell almost 20 percent. But for now, people think that they’ll keep playing and growing, especially with cool new gadgets like artificial intelligence and Microsoft having a big slice of it with their investment in OpenAI.

Could India’s NIFTY index experience a similar shift in the future? Only time will tell.