Brand Gravity and the Failure of Fundamentals: Why Large-Cap Stocks No Longer Track Economic Reality

There is a persistent illusion in modern financial theory that markets price companies according to fundamentals—that valuation is a reflection of earnings, margins, debt levels, and operational performance. But in practice, the price of many large-cap stocks appears untethered from any such economic reality. Metrics like earnings per share or return on equity move one way, while the share price moves another—or doesn’t move at all.

I’ve previously defined a term, 𝜉 (xi), to denote the correlation between a company’s fundamental performance and its stock price behavior. For the largest companies, 𝜉 is empirically close to zero. But why?

There are complex technical explanations—algorithmic saturation, high-frequency trading, institutional order routing—but there is also a simpler, more human answer:

Large-cap stocks are brand names.People invest in them not because they’re undervalued, but because they are culturally charged.Price becomes a function of symbolic gravity, not financial substance.

🔠 Brand as Market Attractor

Firms like Apple, Amazon, Tesla, and Nvidia are no longer perceived simply as companies. They are narrative constructs, vessels for collective aspiration, fear, and faith in technological destiny. Their stock prices are not governed by spreadsheets. They are governed by vibe, by public mood, and by cultural prestige.

To borrow language from sociology, these stocks are totemic. They are imbued with significance that transcends their material function. To own them is to align oneself with a vision of the future. To divest is to renounce that vision. Accordingly, price moves not with the firm's internal performance, but with its perceived social legitimacy.

That legitimacy can be surprisingly fragile. A change in sentiment—Elon Musk becomes politically polarizing, Apple is seen as stagnant, Meta becomes creepy—can result in abrupt price reversals that have no grounding in fundamentals, and in many cases, actively contradict them.

This is not a malfunction of the market. It is simply a different mechanism of valuation:

One in which stocks function not as capital assets, but as cultural artifacts.

🧱 Small and Mid Caps: The Absence of Narrative

Contrast this with the world of small- and mid-cap equities.

These companies are not “cool.” They are not status markers. They are not symbols of progress or decline. Most investors cannot name their CEOs. There is no media narrative surrounding them, no tribal fandom, no social identity at stake.

They are, as one might put it, just there.

And this narrative neutrality is precisely what allows fundamentals to matter. In the absence of brand gravity, price becomes a more direct function of earnings, growth, and financial structure. Not always, and not perfectly—but measurably. The 𝜉 value for such firms, while still modest, is materially higher than for their large-cap counterparts.

🌷 The New Tulipmania

What this suggests is that the pricing of large-cap stocks is no longer anchored in finance at all, but in collective myth. These are the modern tulips, with one key difference: the mania is institutionalized.

In 17th-century Holland, tulip prices collapsed when belief gave out. In today’s markets, the belief is harder to extinguish—because it is no longer a bubble but a consensus heuristic. Retirement funds, ETFs, pension portfolios—entire financial infrastructures are built on the assumption that certain companies are permanent, necessary, and deserving of valuation multiples entirely disconnected from financial performance.

This is not irrational in the colloquial sense. But it is irrational in the valuation-theoretic sense. If price no longer responds to value, then whatever is being priced, it is not a company.

🧠 Final Thought

In a functioning market, fundamentals determine price. In today’s large-cap market, narrative determines price, and fundamentals are reduced to decorative noise.

𝜉, as a diagnostic, reveals this shift. It quantifies something that financial theory has struggled to admit:

That in the upper reaches of market capitalization, we are no longer allocating capital to the most productive firms—we are allocating capital to the most powerful stories.

Until that changes, price will remain an echo chamber for sentiment, and valuation an exercise in anthropology.