Investing in a Changing World: From Carburetors to Compilers

For the better part of the last century, the largest companies in the world were those that produced physical property – traditional transportation machines, the energy that powered them, or the capital that financed them. If someone born in the post-war Baby Boom were to have glanced at the largest companies in the S&P 500 just once a decade, they would have found familiar industrial names on that list from the 1950s through the early 2000s, but that person would find a completely unfamiliar list today. In just the last decade, the S&P 500 leaderboard has changed dramatically. Today, it is dominated by technology (see Figure 1).

The S&P 500 leaderboard, from industry to technology

Nonetheless, the reshuffling of the S&P 500 leaderboard can seem glacial in comparison to the pace of economic data and market price changes in a one-day-option world. It is not always easy investing around themes that play out over the course of years or decades, even if they can greatly enhance portfolio construction and create the potential for long-term success.

While each economic report is important to the markets in the near term, obsessing over incremental fluctuations in data risks missing the underlying structural context surrounding that data. Used car prices are one item in the consumption basket that has seized the spotlight in recent months for their outsized impact on inflation readings. Yet, even amidst a scary-looking spike in the used car CPI, following 30 years of deflation, the share of consumers’ wallets that is being spent on cars is only about 4%, down from about 6% in the 1970s and 80s (see Figure 2).

The jump in car prices in the context of decades of deflation and shrinking wallet share