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Gigantic Stocks Are a Reason to Worry

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Remember when a trillion dollars was a lot of money?

With five American companies having touched that astounding level of market value recently and one,

Apple,

on the cusp of breaching $3 trillion, investors should ask what it means for their portfolios. The precedents aren’t encouraging.

One obvious reason is that even passive investors are increasingly betting on just a handful of stocks vulnerable to a dud product or regulatory setback. Thinking of it in terms of buying an entire business is helpful: Would you rather own the iPhone maker or all of

McDonald’s,

Walmart,

AT&T,

Philip Morris,

Berkshire Hathaway,

Procter & Gamble,

JPMorgan Chase,

Starbucks,

Boeing,

Deere and

American Express

combined? A lot would have to go wrong all at once to torpedo that diversified group of blue-chip stocks.

It may be difficult to imagine a company as dominant as Apple stumbling, but that has always been the case with past market champions. The top stocks in the index 10, 20 and 40 years ago were

Exxon Mobil,

General Electric

and AT&T, respectively. Only Exxon Mobil continues in recognizable form today.

Aside from the concentration risk, the rise of megacompanies has been bad for stock returns in general. Apple and the other nine largest constituents of the S&P 500 comprise nearly 30% of its market value, well above the previous concentration peak seen at the height of the tech bubble before a brutal bear market.

Even if that doesn’t happen this time, owning any company that has mushroomed in value means it is hard for it to outperform for much longer without getting uncomfortably large. Dimensional Fund Advisors looked back over the decades to what happens to a stock that has joined the 10 biggest in the S&P 500. In the decade before getting there it has, on average, outperformed a basket of all U.S. companies by an impressive 10% a year on average. In the next 10 years, though, it actually has lagged behind the market by 1.5% a year.

Part of the reason very big companies get that way is that their earnings grow quickly, but another is that investors increasingly feel safe putting their money on those recent winners. Even if they are wonderful businesses, that can leave them overvalued. The trailing price-to-earnings ratio of the S&P 500’s top 10 constituents in November was 68% above their average multiple over the past quarter-century, which includes the tech bubble years, according to J.P. Morgan Asset Management. The P/E ratio of the remaining companies was just 28% above average.

It isn’t just a tech-stock phenomenon either. Back in 1972 a group of “one-decision” stocks increasingly favored by fund managers—the so-called Nifty Fifty that included

Walt Disney

and Philip Morris—sported lofty multiples more than twice as high as the overall market at their peak. Most survived and even thrived, but their shares lagged behind the market for years as their valuations reverted to the mean in the ensuing bear market.

While there is no way to say when the next market tumble will happen, one way to soften the blow while remaining invested is to recognize that recent winners tend to be relative losers and to bet accordingly. An Invesco index fund launched in April 2003 that holds S&P 500 constituents in equal amounts beat a standard capitalization-weighted ETF owning the same stocks by 58 percentage points in its first 10 years of existence. Since then, though, it has given up most of that edge, trailing its counterpart by 43 percentage points.

Having the same exposure to

O’Reilly Automotive,

Conagra Brands

or

Hasbro

as to Apple isn’t as crazy as it sounds: Small might be about to become beautiful again.

Write to Spencer Jakab at spencer.jakab@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Teladoc Tumbled 38% After Big First-Quarter Loss. Is It Just a Pandemic Play?

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After pandemic drop, Canada’s detention of immigrants rises again By Reuters

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© Reuters. FILE PHOTO: Two closed Canadian border checkpoints are seen after it was announced that the border would close to “non-essential traffic” to combat the spread of novel coronavirus disease (COVID-19) at the U.S.-Canada border crossing at the Thousand Isla

By Anna Mehler Paperny

TORONTO (Reuters) – Canada is locking up more people in immigration detention without charge after the numbers fell during the pandemic, government data obtained by Reuters shows.

Authorities cite an overall rise in foreign travelers amid easing restrictions but lawyers say their detained clients came to Canada years ago.

Canada held 206 people in immigration detention as of March 1, 2022 – a 28% increase compared with March 1 of the previous year. Immigration detainees have not been charged with crimes in Canada and 68% of detainees as of March 1 were locked up because Canada Border Services Agency (CBSA) fears they are “unlikely to appear” at an immigration hearing, according to the data.

The rise puts Canada at odds with Amnesty International and other human rights groups that have urged Ottawa to end its use of indefinite immigration detention, noting CBSA has used factors such as a person’s mental illness as reason to detain them.

A CBSA spokesperson told Reuters that “when the number of entries (to Canada) goes up, an increase in detention is to be expected.” CBSA has said in the past it uses detention as a last resort.

A lawyer told Reuters her detained clients have been in Canada for years.

In the United Kingdom, too, immigration detention levels rose last year after dropping earlier in the pandemic, according to government statistics. Unlike Canada, the United States and Australia, European Union member states have limits on immigration detention and those limits cannot exceed six months.

The rise in detentions puts people at risk of contracting COVID-19 in harsh congregate settings, refugee lawyers say.

Julia Sande, Human Rights Law and Policy Campaigner with Amnesty, called the increase in detentions “disappointing but not surprising,” although she was reluctant to draw conclusions from limited data.

The number of immigration detainees in Canada dropped early in the pandemic, from a daily average of 301 in the fourth quarter (January through March) of 2019-20 to 126 in the first quarter (April through June) of 2020-21.

FEW NO-SHOWS AS DETENTIONS DROPPED

Detaining fewer people did not result in a significant increase in no-shows at immigration hearings – the most common reason for detention, according to Immigration and Refugee Board data.

The average number of no-shows as a percentage of admissibility hearings was about 5.5% in 2021, according to that data, compared to about 5.9% in 2019.

No-shows rose as high as 16% in October 2020, but a spokesperson for the Immigration and Refugee Board said this was due to people not receiving notifications when their hearings resumed after a pause in the pandemic.

Refugee lawyer Andrew Brouwer said the decline in detention earlier in the pandemic shows Canada does not need to lock up as many non-citizens.

“We didn’t see a bunch of no-shows. We didn’t see the sky fall … It for sure shows that the system can operate without throwing people in jail,” Brouwer said.

He added that detainees face harsh pandemic conditions in provincial jails – including extended lockdowns, sometimes with three people in a cell for 23 hours a day.

Refugee lawyer Swathi Sekhar said CBSA officials and the Immigration and Refugee Board members reviewing detentions took the risk of COVID-19 into account when deciding whether someone should be detained earlier in the pandemic but are doing so less now.

“Their position is that COVID is not a factor that should weigh in favor of release,” she said.

“We also see very, very perverse findings … [decision-makers] outright saying that individuals are going to be safer in jail.”

The Immigration and Refugee Board did not immediately respond to a Reuters request for comment.

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Nasdaq futures rise as market attempts comeback from April sell-off, Meta shares soar

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Stock futures rose in overnight trading as the market shook off the April sell-off and investors reacted positively to earnings from Meta Platforms.

Futures on the Dow Jones Industrial Average added 70 points or 0.2%. S&P 500 futures gained 0.7% and Nasdaq 100 futures jumped 1.2%.

The moves came as shares of Meta surged more than 18% after hours following a beat on earnings but a miss on revenue, a sign that investors may see signs of relief in the beaten-up tech sector. Shares were down 48% on the year heading into the results.

Meanwhile, shares of Qualcomm gained 5.6% in extended trading on the back of strong earnings while PayPal rose 5% despite issuing weak guidance for the second quarter.

“I think a lot of people want to believe that earnings are going to pull us out of this, but earnings are not what got us into this,” SoFi’s Liz Young told CNBC’s “Closing Bell: Overtime” on Wednesday. “… But the reality is there are so many macro headwinds still in front of us in the next 60 days that the market is just hard to impress.”

The after-hour activity followed a volatile regular trading session that saw the Nasdaq Composite stoop to its lowest level in 2022, as stocks looked to bounce back from a tech-led April sell-off. The index is down more than 12% since the start of April.

In Wednesday’s regular trading, the tech-heavy Nasdaq ended at 12,488.93, after rising to 1.7% at session highs. The Dow Jones Industrial Average rose 61.75 points, or 0.2%, to 33,301.93 propped up by gains from Visa and Microsoft, while the S&P 500 added 0.2% to 4,183.96.

Investors await big tech earnings on Thursday from Apple, Amazon and Twitter, along with results from Robinhood. Jobless claims are also due out Thursday.

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