The trillion-dollar club is losing members as the nation’s most valuable companies lose trillions in market capitalization as the Federal Reserve tightens.
The valuations of Apple, Microsoft, Amazon, Tesla and Alphabet (Google’s parent company) have collectively lost $3.4 trillion this year, according to research from market analytics firm Finbold. This means that the company’s total market capitalization, which is the total amount of its shares, has fallen 34% since his January 1st.
“It’s a lot of money,” said David Musto, a professor at the Wharton School of Business at the University of Pennsylvania. “There is still a lot of confidence in[these companies]but this is a dangerous moment.”
The decline comes as the Nasdaq Composite has fallen more than 33% year-to-date amid high inflation, rising interest rates and growing fears of a recession.
Using data obtained on November 3, Finbold found that Apple, the company with the highest market capitalization, fell 18% from $2.9 trillion to $2.3 trillion. Amazon lost his 45% of value, while Microsoft, Alphabet and Telsa lost more than 34% each.
Finbold’s report notes that the decline is mostly related to existing market conditions caused by inflation and rising interest rates.
“The tech giant has lost ground as a stock that investors can take refuge in during times of market uncertainty,” the report says.
Petra Moser, an economics professor at New York University, said the decline in market value would likely be felt through employment. A number of tech companies have announced or will announce layoffs, including Snap Inc., Meta, and Robinhood.
“Innovation is also likely to slow down,” Moser told US TODAY in an email. “There are fewer people doing the work that needs to be done, and less cash to pay for it.”
Moser also said these companies were “greatly overvalued.” All five companies were valued at over $1 trillion at the beginning of the year. Apple, Microsoft and Alphabet are now the only ones left in the Trillion Dollar Club.
“There is a general argument that stocks are enjoying unusually high valuations and strong outperformance relative to other sectors,” Finbold said in his report. As such, “some in the market believe that the current valuation of technology stocks should not be alarmed.”
Tech companies also saw their valuations plummet in 2020 after the pandemic hit, but were able to quickly bounce back.
Given how much the companies in the report have fallen, Musto said it will probably take time to recover from the recent downturn.
“It would be wishful thinking to think they’ll bounce back quickly,” Musto said.
Finbold points out that a company’s valuation depends on how the economy as a whole works.
“Depending on how the Federal Reserve handles tightening policy, a pick-up in stock market activity may relieve tech giants,” the report says.
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