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Dec. 6, 2019, 8:45 a.m. EST

Do growing calls for antitrust action threaten the S&P 500 index as the 2020 election nears?

Investors should note there is a growing bipartisan consensus over antitrust regulation

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By Chris Matthews, MarketWatch


Mario Tama/Getty Images
Elizabeth Warren is drafting a bill that would ask regulators to review past mergers and block more going forward, Bloomberg reported Thursday.

As the 2020 U.S. elections come in to focus, investors are turning their attention to potential policy changes that could have a major impact on the U.S. economy and stock market.

While a Democratic party sweep of the presidency and Congress could pose risks to industry as varied as higher corporate taxes, Medicare for All, or a ban on fracking, there is one threat that is likely to loom over the U.S. stock market regardless of the outcome: antitrust.

A growing bipartisan skepticism of the power of big technology firms has helped spark a renewed interest in long-dormant federal and state powers for regulating the market power of corporations.

Google parent Alphabet Inc . /zigman2/quotes/205453964/composite GOOG +1.98% , Facebook Inc . /zigman2/quotes/205064656/composite FB +0.17% , Amazon Inc. /zigman2/quotes/210331248/composite AMZN -0.70% and Apple Inc . /zigman2/quotes/202934861/composite AAPL +1.11%  are all being investigated by a Republican party led Federal Trade Commission and U.S. Justice Department over antitrust concerns, while a bipartisan coalition of 47 state attorneys general have launched a separate investigation into Facebook.

These actions could be the beginning of a sea change in U.S. antitrust policy after a half-century of relatively lax enforcement and they threaten to harm stock valuations in the tech and health care sectors as well as the S&P 500 index /zigman2/quotes/210599714/realtime SPX +0.39%  more broadly, analysts say. In the long term though any resulting increase in competition could be good news for the overall U.S. economy.

“Technology has grown much more oligopolistic over the last 10 to 20 years, so the number of companies at the top is few, but their size is massive,” Savita Subramanian, head of U.S. equity and quantitative strategy told MarketWatch.

She compared large tech companies today to the financial services sector from 2005 through 2007, when large banks took advantage of light regulation to grow bigger while corporate governance started to “deteriorate.”

“Thinking about how to stop that continued steamroller effect from tech companies is an area that has essentially bipartisan support in Washington at this point,” she added. “That is one reason we downgraded technology…we could see some of these regulatory concerns weigh on the multiples of these stocks.”

The costs of monopoly power

Thomas Philippon, professor of finance at the New York Stern School of Business and author of recently published book “The Great Reversal: How America Gave Up on Free Markets” said in an interview that during the past 20 years, “concentration has increased in most U.S. industries” since the 1990s, and not just in the technology sphere.

The result of this trend has been higher prices for consumers and lower pay for workers.

In his book, he pointed to a 2017 study by market research firm BDRC Continental that shows that “in most advanced economies, consumers pay around $35 a month for broad band internet connections. In the U.S., they pay almost double.”

As for airfares, in 2010 both European and U.S. airliners reaped about the same profit-per-passenger, but after a wave of mergers during the past decade, the U.S. companies reap $22.40 per passenger, while their European rivals garner just $7.84.

These trends have also impacted worker wages, as growing industry concentration reduces competition for labor, Philippon said. Growing market power has also coincided with a rising use of non-compete clauses in worker contracts that prevent them from going to work for rivals.

/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,480.39
+28.69 +1.98%
Volume: 2.40M
Jan. 17, 2020 4:00p
P/E Ratio
31.77
Dividend Yield
N/A
Market Cap
$1000.74 billion
Rev. per Employee
$1.39M
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 222.14
+0.37 +0.17%
Volume: 15.91M
Jan. 17, 2020 4:00p
P/E Ratio
35.48
Dividend Yield
N/A
Market Cap
$633.65 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 1,864.72
-13.22 -0.70%
Volume: 4.00M
Jan. 17, 2020 4:00p
P/E Ratio
82.56
Dividend Yield
N/A
Market Cap
$924.52 billion
Rev. per Employee
$359,671
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/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 318.73
+3.49 +1.11%
Volume: 34.45M
Jan. 17, 2020 4:00p
P/E Ratio
26.89
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0.97%
Market Cap
$1397.32 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/210599714/realtime
US : S&P US
3,329.62
+12.81 +0.39%
Volume: 2.15B
Jan. 17, 2020 5:07p
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