Bob’s Journal 6/19

The Mega-Cap Stocks Are Breaking Up

The stocks with the largest capitalizations were highly correlated with each other for a long time, but that hasn’t been the case in 2025.

The stocks with capitalizations of more than one trillion dollars generally are known as mega-cap stocks. Currently, there are nine such stocks: Microsoft (MSFT), Nvidia (NVDA), Apple (AAPL), Amazon.com (AMZN), Alphabet (GOOGL), Meta Platforms (META), Broadcom (AVGO), Berkshire Hathaway (BRK/B), and Tesla (TSLA).

For the last several years, the stocks tended to rise and fall (mostly rise) almost in unison. The largest capitalization stocks in the S&P 500 Index dominated the returns of the index in both the short-term and longer-term.

Some investment advisers recommended that investors abandon index funds and instead buy shares of the largest stocks.

But the pattern seems to be broken in 2025.

The year-to-date returns of the group vary considerably. META tops the group with a return through last Friday of 16.72%. AAPL is the laggard in the group with a loss of 21.35%. TSLA isn’t far behind with a drop of 19.45%.

Other mega-cap stocks with negative returns so far in 2025 are AMZN and GOOGL.

The returns among the group diverged so much in the first part of 2025 that their 12-month returns no longer are aligned.

All still have positive returns. But GOOGL is barely in the black with a 0.18% return. On the other end of the spectrum, TSLA has gained 78.28% and AVGO is up 46.46%.

That’s quite a gap between the highest and lowest performers in the group. The result, according to Bespoke Investment Group, is that for the year to date the median return of the mega-cap stocks was modestly positive as of June 10, but the average return of the group was slightly negative.

Google Is Being Disrupted, and So Is Much of the Internet

Google.com disrupted and revolutionized the internet with its then-innovative way of searching the web for information on topics.

Google transformed the internet so much that previous search leaders, such as Yahoo.com, became afterthoughts. Google became a widely used verb and drew lawsuits alleging antitrust and other anti-competitive actions from a number of countries.

Now, the Google search engine is being disrupted by new technology. The landscape is changing so rapidly that very soon using Google to search for information and sources might be considered antiquated.

The disrupter this time is artificial intelligence (AI). Barron’s reports that the use of internet search engines is declining rapidly because of the boom in AI.

Internet search traffic has been declining for the past 12 months, and the decline is picking up speed as more and more people use AI-powered models or AI-enabled search engines to do research.

Google is using its own AI model to create summaries of a topic at the top of a search results page. To some extent, this approach could enable Google to remain relevant for internet research, but it has secondary effects that aren’t good for Google and many websites.

The summaries apparently are causing people to skip the traditional links to source websites. The AI-powered summaries satisfy the users’ needs.

A result is that people are clicking links to visit websites less often. That’s reducing Google’s revenue from search referrals and reducing visitors and revenue to a wide range of websites.

Barron’s reported that May 2025 might have been a tipping point in the switch from links to AI.

Sites for a wide range of economic sectors saw their website traffic drop considerably, largely due to fewer referrals from Google.

Search referrals declined 20% from a year earlier for travel and tourism sites, 17% for news and media sites, and 9% for e-commerce companies. There were sizable declines in search referrals for finance, food and drink, and lifestyle and fashion sites.

Google likely will continue to do well through the transition because it has a strong AI presence and has other business divisions that are doing well.

But many other types of businesses must adapt. They need to make deals with AI providers, develop their own AI-driven search engines, or find other ways to bring web users to their sites.

You Might Be Spending ‘Walmart Dollars’ Soon

American businesses and consumers have largely moved away from using paper currency and coins. Instead, most transactions are made electronically using payment cards.

The next big move might be away from payment cards.

Major businesses are looking at establishing their own currencies and payment systems, according to The Wall Street Journal.

Retailers such as Walmart and Amazon are looking at developing their own versions of the digital currencies known as stablecoins.

A stablecoin is a digital currency that is backed by assets. Most stablecoins are backed directly or indirectly by U.S. dollars, usually by the stablecoin sponsor-owning treasury bills.

Stablecoins are different from the speculative digital currencies, meme coins and some other digital assets that aren’t backed by anything and depend entirely on speculators to support their prices.

For more details about digital assets and currencies, see my May 2024 episode of the Spotlight Series.

The retailers are exploring their own stablecoins because the legal environment is becoming more hospitable toward digital assets.

The Trump administration already issued some banking regulations that make it easier for banks to deal with digital assets.

More importantly, Congress seems likely to pass a version of a bill known as the Genius Act that would establish a regulatory framework for stablecoins (but not for other digital currencies).

If the businesses create their own stablecoins, customers would have the option of paying through either one of the usual means or a business’ stablecoin. The businesses could provide discounts or other incentives to encourage people to use their stablecoins.

Retailers could gain significant advantages from their own stablecoins.

When stablecoins are used, retailers avoid the fees, payment delays and other disadvantages of using payment cards and other elements of the financial system.

The businesses also might shift their transactions with suppliers to their stablecoin networks to gain similar advantages.

In the past, Walmart has explored creating its own bank or lending company, but appears to have abandoned the plans. The company does have a financial technology unit.

The creation of stablecoins by large retailers could inflict significant damage on card payment processing companies such as Visa, MasterCard and PayPal. Major banks also would feel pain. In fact, a consortium of major banks reportedly is in discussions to create their own stablecoin.

The Data

The preliminary Consumer Sentiment Index from the University of Michigan jumped to 60.5 in mid-June from 52.2 at the end of both May and April. The index still is well below the 74.0 level of December 2024.

The May and April numbers were near all-time lows. The mid-June reading, if it persists through the end of the month, would be the first increase in six months.

Consumer assessments of both current conditions and future expectations increased sharply in the first half of June.

Retail sales fell 0.9% in May after declining 0.1% in April. The May decline matches January 2025 for the biggest monthly drop since May 2023.

The 12-month change in retail sales was a 3.3% increase through May and a 5.0% increase through April.

A large part of the fall in retail sales was due to lower vehicle sales. Excluding gasoline and auto sales, retail sales fell 0.1% in May and increased 0.1% in April.

The Housing Market Index from the National Association of Home Builders fell to 32 in June, its lowest level since December 2022. The index’s recent peak was 47 in January 2025.

Housing starts declined 9.8% in May after increasing 2.7% in April. May saw the biggest monthly percentage drop since January 2025 and second biggest since March 2024. The number of housing starts in May was the lowest since May 2020.

The Empire State Manufacturing Index fell in June to -16.00 from -9.20 in May. The index has been negative, indicating that manufacturing in the region is contracting, for four consecutive months and seven of the last 12 months.

Industrial production declined 0.2% in May following a 0.1% increase in April. Over 12 months, industrial production increased 0.6% through May and 1.4% through April.

Manufacturing production was 0.1% higher in May after falling 0.5% in April. The 12-month increase in manufacturing production was 0.5% through May and 1.1% through April.

The Producer Price Index (PPI) increased 0.1% in May after falling 0.2% in April. The 12-month increase in the PPI was 2.6% through May and 2.5% through April.

The core PPI (which excludes food and energy prices) also increased 0.1% in May after declining 0.2% in April. The 12-month rise in the core PPI was 3.0% through May and 3.2% through April.

New unemployment claims in the latest week declined by 5,000 to 245,000, but the previous week’s claims were revised higher to 250,000. New claims in the last three weeks were at the three highest levels since October 2024.

Continuing claims, which lag a week behind new claims, decreased to 1.945 million from 1.951 million, which was the highest level in more than three years.

The Markets

The S&P 500 lost 0.92% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 1.51%. The Russell 2000 declined 2.51%. The All-Country World Index (excluding U.S. stocks) decreased 1.34%. Emerging market equities retreated 1.12%.

Long-term treasuries rose 0.72% for the week. Investment-grade bonds increased 0.44%. Treasury Inflation-Protected Securities (TIPS) added 0.69%. High-yield bonds lost 0.13%.

In the currency sector, the U.S. dollar declined 0.07%.

Energy-based commodities increased 6.82%. Broader-based commodities rose 4.71%. Gold gained 1.67%.

Bob’s News & Updates

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