Chinese customers look at iphones at the official opening of the new Apple Store in the Sanlitun shopping area on July 17, 2020 in Beijing, China.

Kevin Frayer | Getty Images

This pandemic has provided some unusual connect-the-dots opportunities.

The suburbs are overrun with wild animals because of the lack of cars rushing back and forth to work.  Light bulbs are on permanent backorder because everyone has them turned on all day.

Finally, shares of Apple and Amazon have begun to serve as the equivalent of a ready checking account, available to snatch up gobs of any attractive asset classes.

This move is even riskier today as big technology stocks sold off on Friday afternoon while investors raised cash amid fear from the GameStop market mania.

Two coincident phenomena have collided to elicit this change: short-term rates are at rock bottom and the largest mega-cap stocks dwarf the rest of the market.

The five largest stocks in the US market, highlighted below, rallied at least 60% each from their March low.  On Sept. 2, their peak, they accounted for over $7.5 trillion in capitalization, or roughly 25% of the entire value of the S&P 500. 

See below for a list of price changes among the highest market cap stocks in the S&P 500 from Sept. 2, 2020 through Jan. 19, 2021, according to FactSet.

Here are those price changes excluding Google.

Compare these to the nearly 1,500 stocks defined as small cap, with values between $300 million and $2 billion. 

On Sept. 2, the date the large tech stocks peaked, there were 1,494 stocks within that category, with a combined value of $960 billion. 

That means that the entire universe was worth only 43% of Apple’s shares and about half that of both Microsoft and Amazon. 

It’s mathematically possible that the future earnings power of a handful of digital platform companies might justify that degree of relative market appeal.

However, it is more likely that the narrow leadership in 2020 reflected investors’ comfort with these titans and their ability to navigate the terrifying unknowns of a pandemic.

In its shock, the market dismissed the fact that small companies should have more opportunities to grow their sales and earnings than those starting with revenues in the tens of billions.

By early September, vaccine approvals became the catalyst to shift gears from the Covid-beneficiary equities to the Covid-impaired “reopening” stocks. 

Apple, Amazon, Facebook, and many other market leaders peaked, sliding from their highs over the following four months. 

Small cap stocks have rallied impressively since Sept.2, jumping 33% and adding $314.5 billion to their combined value, now at $1.274 trillion, according to FactSet.

Despite these percentage gains, the total dollar increment of the entire Small Cap composite equals about half the capitalization of Facebook and only 20% of Amazon’s valuation. 

A decline in prices and a redeployment

While a 6.3% price decline is small relative to their prior six-month gain, the dollars generated from the selling of Apple, et al. was approximately $500 billion. 

Of course, a drop in stock prices does not always correlate with a seller pocketing money; equity values can fall from the lack of any bidders.  

However, in the case of the largest US public companies, whose shares are frequently bought and sold by index funds, among others, it is highly unlikely that the marketplace lacked buyers.

For the first time in months, the trade imbalance favored the sellers.  

This suggests that until short-term interest rates move above the 1% level, investors may utilize their holdings in the mega-caps as available funding for other trades. Apple’s yield is six times that of the one-year Treasury bill. 

Given their enormity, the shift out of a small percent of Big Tech shares to fund new acquisitions can dramatically boost entire categories, which may have helped fuel the sharp uptrends in small cap, energy, alternative energy, emerging markets, and commodities over the past few months.   

Since the Apple and Friends’ cohort seems capable of growing earnings in an improving economy or one stuck in a longer Covid-land purgatory, these stocks could be viewed by their owners as safe or defensive, holding them as a repository until better opportunities arise.

However, company fundamentals are not the same as stock price stability. There is no question that the highest valued stocks are not only closely correlated to US equities but also represent a large chunk of the US equity market.   

Cash may not earn anything, but it doesn’t lose nominal dollar value over time.

Investors need to be careful if they are, in fact, thinking of Apple, Microsoft, Amazon, Google, and Facebook as their trading account cash reserves.  

While Big Tech stocks falling and small cap stocks rising might be another pandemic connection, there’s no guaranteed security in equity securities.