Macro Insights: Change is the only constant

FACEBOOK: Meta (FB) publicly listed as Facebook 10-years ago today in the 3rd largest IPO in US history. The ten-fold price surge from its $38 IPO price took it to a 2021 peak market cap. over $1 trillion. But the price since halved and its 16x P/E valuation is below S&P 500 average. This is a stark reminder of the constant creative destruction among even the largest stocks, with S&P 500 stock longevity plunging (see chart), and an oil stock now back as the world’s largest.

LONGEVITY: McKinsey consultants Foster and Kaplan in the famous 2004 book ‘Creative Destruction’, showed even the best run and most admired companies often struggled to sustain outperformance for more than 10-15 years. Similarly, the average longevity of a stock in the S&P 500 index has near halved in recent decades, due to takeovers or falling market cap. This has been worsened by the speed of the tech transition and rise of ‘winner-takes-most’ economics.

CHANGING GUARD: Symptomatic of this constant corporate change, and the recent rotation from Growth (IWF) to Value (IWD), is that oil company Saudi Aramco (SAOC), with a $2.5 trillion value, has replaced Apple (AAPL) as the world’s largest market cap stock. This turnover is normal. Only two of the eight biggest US stocks were there a decade ago, and only one the decade before that. Energy was over 25% of the S&P 500 index 40-years ago, 10x current levels.

All data, figures & charts are valid as of 17/05/2022

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