Modern Market Cap Theory

Today was a crazy day in the market.

Salesforce, which started the day with a market cap of $195 billion, gained 26%. Netflix, which started the day with a market cap of $216 billion gained 12%. Facebook, which started the day with a market cap of $800 billion, gained 8%, or $70 billion.

In the words of Vince Lombardi, “what the hell’s going on out here?”

When I first made the version of my infamous pie chart in July 2018, the five largest stocks in the S&P 500 had a market capitalization that equaled the smallest 282 stocks in the index. Ahh, simpler times. That number is now 389.

Since then, the big five have added $3.5 trillion in market cap. Apple alone, the biggest of them all, is now as big as the smallest 201 stocks in the index.

Modern market cap theory, or MMCT, is the idea that there is no upper limit for how large stocks can grow. Tesla can theoretically have a market cap that exceeds our GDP. All Elon would have to do is issue 9.5 billion shares and voila.

I don’t know why people are getting so worked up over the fact that 5 stocks are 25% of the S&P 500. Wake me when it’s 150%.

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