Apple’s strength signals a new economic age

Thanks to the pandemic, Big Tech is prospering at the expense of traditional industries as never before

City folklore has it that there are two, faintly irrational but nonetheless reliable, sell signals when it comes to stock picking. One is when a hugely successful and inspirational manager/founder decides to leave a company. Whoever comes next will find it a tough act to follow, if only because his predecessor will no doubt have overhyped the reality. The other is when the company builds itself a shiny new, state-of-theart headquarters. Look no further than Royal Bank of Scotland for evidence. Its Gogarburn offices on the outskirts of Edinburgh stand as a monument to the hubris of Fred Goodwin.

If, however, you had applied either of these two dictums to Apple, you’d have largely missed out on one of the greatest bull runs in history. When the company’s co-founder and undoubted genius Steve Jobs died and was succeeded by the nice, but seemingly ineffectual, Tim Cook, people said: “Well, that’s the end of that then.”

Since then, the shares have risen nearly ninefold, and Mr Cook’s strategy of diversification into digital services, making Apple as much a software as a hardware company, has been wholly vindicated.

Similarly, when Apple built its now iconic, $5 billion, Norman Foster designed “flying saucer” headquarters at Cupertino, California. Shares scarcely missed a beat in their upwards march, the latest spurt caused by the apparently immaterial announcement of a stock split. Being told you now have two shares for every one you used to own doesn’t mean you’ve doubled your money. Even so, it was enough to push the company over the line to become the world’s first $2 trillion corporation by market value. This is about the same size as the annual GDP of a major advanced economy such as Italy.

That in itself is a growing problem for the likes of Apple. Political resentment is a bigger threat to the continued ascendancy of Apple, Amazon and Google than the usual enemy of management complacency. Regulatory containment and even break-up is firmly on the political agenda in both the US and Europe. For now, however, the digital supertankers seem quite unstoppable.

It’s not just in the admittedly somewhat fatuous signals of headoffice construction and management succession that they are defying all conventional thinking. Some of them are also extraordinarily widely diversified, using their digital supremacy to eat up new markets and attack the soft underbelly of a whole range of traditional industries, from media to banking, retail and groceries. Great swathes of the economy are falling to their ascent, disproving the old rule that only managements that stick to their knitting do well.

Another rule fallen by the wayside is the idea that in order to prosper and attract investment, you have to pay decent dividends. Twenty-six years after its formation, Amazon has yet to pay one, choosing instead to reinvest. In the past, this would have had investors up in arms. Now they are happy to be along for the ride.

Despite the biggest economic collapse since the Great Depression, US stock markets are again testing record highs, having made back all the losses inflicted by the early panic over Covid. The apparent disconnect between Wall Street and Main Street has rarely been more striking, even taking account of the distorting effects on asset prices of rampant central bank money printing.

Yet markets look forward, not back, and what they are focused on now is not so much the destruction of the old economy as its transformation into the new. Lockdown has put a rocket under demand for home-entertainment, home-shopping and home-working services, so much so that lockdown strategies might not even have been possible but for these online services. Five to 10 years of economic and commercial evolution have been crammed into a few months.

Optimists would say that the bounce in stock markets points to a sharp, V-shaped recovery in the economy. If we drill down into the performance of individual stocks, however, this is far from clear. Much of the gain in the S&P 500 comes from just five companies – Apple, Alphabet, Amazon, Facebook and Microsoft – such that collectively they now account for around a quarter of the entire value of the index, possibly the biggest concentration of such value in stock market history. Many more traditional companies, on the other hand, remain mired deep in bear territory.

The surge in stock markets, then, tells you more about central bank money printing and the pace of disruptive transition from one economic age to another than it does about immediate prospects for jobs and living standards. It’s all very well if you happen to work for the likes of Apple. But economic prosperity requires a much wider hinterland of enterprise, activity and employment. Booming stock markets contrast sharply with ultra-low long-term government bond yields. The two point to very different economic futures – the one relatively positive, albeit dominated by American technology companies, the other depression-style levels of stagnation long into the future. Pick your poison.