One month ago, Goldman triggered a modest selloff in growth and momentum stocks, when it pointed out that the
five largest S&P 500 stocks, the FAAMGS (or MSFT, AAPL, AMZN,
GOOGL, FB) have risen to account for over 20% of index market cap,
representing the highest concentration on record...
... resulting in the lowest market breadth since the tech bubble...
... and warning that "narrow market breadth is always resolved the
same way" as "narrow rallies lead to large drawdowns as the handful of
market leaders ultimately fail to generate enough fundamental earnings
strength to justify elevated valuations and investor crowding. In these
cases, the market leaders “catch down” to weaker peers."
In short, as we wrote - jokingly - on April 17 that "The Market Is Now Just 5 Stocks", that's precisely what has happened, with investors dumping everything but the top 5 names, and creating the biggest "hedge fund/mutual fund/retail/momentum hotel" ever assembled in the FAAMGs, with Goldman revealing another stunning statistic: as of April 30, the 5 biggest stocks are up 10% while the remaining 495 S&P500 companies are lower by a collective 13%.
A few days ago, JPMorgan's Marko Kolanovic made another important observation when
he pointed out that the coronavirus lockdowns were accelerating this
split in the market between the tech megacaps and everyone else:
Clearly there are economic winners and losers of prolonged shutdowns and social distancing. Working remotely, software/cloud, online shopping and socializing, etc. all benefit large technology firms. It
should not come as a surprise that large tech stocks are near all-time
highs. This could create (perhaps wrong) perceptions of conflicts
of interest when the leading technology firms are influencing policies
related to reopening (such as reimagining education, health care,
vaccines, contact tracking and tracing etc.).
None other than Trump's former chief economic advisor and Goldman COO, Gary Cohn, confirmed all of this:
We let big box retailers stay open because they sell essential goods, but they also sell the same nonessential goods that small stores - who were forced to close - normally do. We can't let this run small stores out of business and need to make sure we level the playing field.
And now, the latest confirmation that the coronavirus is just what the megacaps (and their billionaire owners) would have ordered, comes from the concluding Q1 earnings season as JPMorgan points out that 40% of S&P 500 companies have withdrawn 2020 guidance, which may not seem like too many but consider that only 310 companies discussed full-year guidance, which means that two-thirds of companies that normally discuss the future no longer have any visibility....
