Markets wavered for most of the week, in the face of an uncertain U.S. government stimulus outcome. Ultimately though, investors showed strong optimism as markets largely closed positive from the prior week as a variety of good economic reports surfaced.

U.S. housing reports came back strong for September (prices rose, albeit amidst low inventory), air travel in the U.S. appeared to have hit a strong return over the weekend, and unemployment reports showed surprisingly lower results – all indicating pockets of growth and stability in the current economy.

Weekly Returns

S&P 500: 3465.4 (-0.543%)       

FTSE All-World ex-US(VEU): (0.7%)        

US 10 Year Treasury Yield: 0.84% (10.53%)

Gold: $1,903.00 (0.3%)

EUR/USD: 1.186 (1.2%)

Major Events

•   Monday – Airport TSA Screenings for Sunday are reported at over 1 million passengers – a number not seen since March 2020.
•   Tuesday – U.S. Justice Department filed a lawsuit against Google for uncompetitive business practices around its search engine and advertising platforms.
•   Wednesday – U.S. Justice Department announced Purdue Pharma settlement in which the maker of OxyContin will plead guilty to multiple felonies.
•   Thursday – Weekly Jobless Reports declined week-over-week, beating expectations.
•   Thursday – A California appeals court reaffirmed Uber & Lyft’s requirement to consider drivers as employees.
•   Friday – Number of new daily COVID cases in the US exceeded 70,000, a large number against many other reporting countries.

Our Take

Beyond the expected focus on the impending election, and the coronavirus, this week was marked by the increased impending regulatory scrutiny of big tech.

Companies such as Facebook, Apple, Amazon and Google, all which have significant (perhaps unprecedented) reach with consumers, have come under various levels of critique for their business practices and their ability to curtail competition. In fact, the U.S. Justice Department filed a suit against Google for non-competitive practices just this week.

This poses an interesting challenge as other tech giants race to compete themselves. The challenge? Expand to better compete with the largest of the large, while avoiding future regulatory scrutiny. This week, reports surfaced of Alibaba (what some would call a huge Chinese version of Amazon) acquiring the largest Chinese big box retailer, further expanding its scope and reach with consumers. Similarly, this week news of Microsoft teaming up with SpaceX surfaced, as Microsoft attempts to compete with Amazon on their cloud business.

While it’s hard to assess what impact will come from regulatory authorities (if any), it is safe to say that regulatory risk seems to be elevating for some of the best performing stocks in 2020.

I doubt the United States is on the precipice of another Teddy Roosevelt-like Sherman Antitrust Act, trust busting, Federal Trade Commission creating revolution. However, if the mega tech companies continue to expand, it seems reasonable to expect that their reach and market dominance will hit a ceiling eventually, and this week’s expanded focus calls the “when” into question. Whether the ceiling is imposed from regulation or is the result of a natural slowdown of growth that occurs for any maturing business, it’s probably a good time to assess how much exposure investors have to the biggest of the big publicly traded tech companies. Historically speaking, the biggest companies don’t stay the biggest forever.