The best chart I have seen all week is an illustration of the large underperformance of the largest market cap company in the U.S. AAPL’s recent underperformance led to a frenzied debate about just how big is too big. This chart is a unique look at how owning the largest market cap company has historically been a losing proposition on a relative basis. Here it is, courtesy of Mebane Faber, by way of Abnormal Returns:
AAPL (now about $423 billion market cap) has retaken the baton from XOM ($400 billion) in the past 2 weeks following its post-earnings rally. But the above chart raises the concern that companies of a certain size just have difficulty generating sufficient earnings growth, especially when compared to the rest of the companies in the stock market.
After the 2 behemoths, AAPL and XOM, there were a handful of companies with a market cap between $200 and $250 billion. Until MSFT’s recent rally, that is. MSFT’s rally has made it the clear 3rd in the market cap race, now clocking in around $300 billion.
While the headlines of the next $1 trillion market cap company were hot and heavy 6 months ago, my sense is that we are still a ways away from the necessary economic size on a global basis to support such a monstrous market cap. But if animal spirits do push one company to that threshold, it would behoove us to remember that it’s probably time to rotate into other names, as opposed to into the largest company in the world.