How Apple and Microsoft could blow up the stock market

Microsoft (MSFT), Apple (AAPL), Amazon (AMZN), Google owner Alphabet (GOOGL) and Facebook (FB) are the largest companies in America, with a collective market value of $4.5 trillion. That means that popular passive index ETFs like the SPDR S&P 500 (SPY) and Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100, skew disproportionately towards the tech sector. To put into context just how gigantic these titans of tech are, consider this: Microsoft and Apple, now worth about $2.1 trillion combined, equal nearly the entire $2.2 trillion market cap of all the companies in the Russell 2000 (RUT) small cap index, noted Chuck Royce, chairman and portfolio manager for small cap investing firm The Royce Funds, on a recent Royce Funds video. Royce said that the biggest companies in the S&P 500 normally have a collective market value that’s worth about 50% of the Russell 2000. “The mega-caps are sort of what everyone has come to think of as the most important enterprises around the world. They are very dominant, very important. They’re very disruptive. So for good reason they’ve achieved a global status. But I think they’re in a kind of bubble as to their specific stock market performance,” Royce said. So what would happen to the broader market if investors soured on any — or all — of these tech stocks? That would be a big problem. The bigger they are the harder they fall? “I don’t think you can ignore the fact that the market has skewed so much towards tech. Amazon and other big techs do benefit from so much money flowing to passive ETFs,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors. “If there is a sudden stock sell-off, then big techs have more risk.” Mark Hackett, chief

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