Only These Five Companies Matter For The Direction Of The Market

Tyler Durden's picture

When it comes to the direction of the market, pardon the "market", only 5 companies matter.

That is the opinion of Goldman's chief strategist David Kostin, who observes that just "five firms – AMZN, GOOGL, MSFT, FB, and GE – totaling 9% of the equity cap of the index have accounted for more than 100% of the S&P 500 YTD return. Stated alternatively, without these stocks the index would have posted a 220 bp lower total return or -2.2% YTD."

As a reminder, over the weekend we pointed out that having noticed the dramatic collapse in the Advance-Decline line, Goldman's own estimation of market breadth just dropped to a never before seen low.

Our Breadth index currently equals 1, one of the lowest levels in the 30-year series. The Breadth index has stayed below 5 for at least two consecutive months just 11 times since 1985. The typical episode lasted four months, with past episodes ranging from two months in 2007 to a high of 14 months during the tech bubble. The current exceptionally narrow breadth period is just one month old but is on track for a second month, so this environment could reasonably be expected to persist into early 2016.

Goldman then explains why its clients are nervous:

Clients continue to point to similarities between the current narrow breadth environment and that of the later years of the tech bubble. S&P 500 forward P/E currently equals 16.3x, near the highest level since the tech bubble. Mega-cap growth stocks explain a vast majority of the trailing 6- and 12-month S&P 500 return. Other similarities to the late 1990s provide a persuasive case for why mega cap outperformance will likely persist, at least in the near term. Modest US economic growth and peak margins should put a premium on stocks with perceived high secular growth prospects. 

Sure... or just keep buying these five stocks, which as even Goldman admits are all that matters to the market. Because if this record low breadth fails to prop up the S&P, then all other stocks will likewise tumble. So may as well do what all the other "smart money" is doing and herd in just these five stocks...

... just don't be surprised when the dug is pulled out from under you: at a valution over 20x EBITDA, the top 5 companies are overvalued by precisely 100% compared to the rest of the S&P500.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
thunderchief's picture

And that is what's called a propaganda Average.

An essential for any rigged market. 

NidStyles's picture

Imagine that, all tribe controlled corporations... 

old naughty's picture

what, no baba (and the 40 banks)?


coinhead's picture
coinhead (not verified) old naughty Nov 16, 2015 9:38 AM


buzzsaw99's picture

okay, in an era of zirp what you want to do is pay some schmuck a 2&20 to pay some other schmuck a management fee to pay some other schmuck a bonus. with YOUR money! hahahahahahaha!!!

FreeShitter's picture

Ge was garbage until the recent bounce, but it will fade soon.

_ConanTheLibertarian_'s picture

At least they actually produce something tangible but apparantly it's crap.

FreeShitter's picture

Im a big fan of Ge refrigerators...had one for over 25 years with no probs except a 100 dollar defrost heater that needed to be replaced. Ge shot up because someone big decided to invest 2.5B at the right tiime...funny how that happens, and then all the momentum whores decided to jump in.

Hopeless for Change's picture

You had a GE Refrigerator for over 25 years, which means that GE used to build quality appliances. 


Nobody will be saying that in 25 years... Their stuff now is GARBAGE

buzzsaw99's picture

i couldn't believe ge was on that list either. washed up, dried out bloated piece of crap.

Deus Irate's picture

And of the 5, 3 are perpetual marketing machines and only 2 actually make a product, though those products are mostly crap.

Budnacho's picture

I don't suppose it's lost on many that these companies directly support the intelligence-community....

Dr. Engali's picture

I hate when the dug gets pulled out from under me.

SoilMyselfRotten's picture

Could be worse, you could get swept under the dug

thunderchief's picture

There is no way the PPT can buy all stocks.  They only buy the ones that show the green on the big board. 


orangegeek's picture

your move yellen

orangegeek's picture

Markets and currencies saw no large moves - I guess ISIS will have to take the loss this morning and reposition.

DontFollowMyAdviceImaDummy's picture

"markets" that's so rich!!!

orangegeek's picture

oopsie, I meant "the marsinos".  


that better?

Agstacker's picture

Facebook, with over 1 billion fake accounts, can't be wrong!  

orangegeek's picture

with 500 million accounts based in Indonesia/Phillipines.

homebody's picture

And then there was one


We are fucked!

The Ram's picture

So, of the 5 companies, only 2 produce anything tangible.  Sounds productive to me.

ali-ali-al-qomfri's picture

Updated profile, Consumed by 1, 2 ,3, Broken windows seen clearly.

Maps says where you going! Power plant keeps on spewing for eternity.


Stepped on the caterpiller, slipped on the oil,

Metals weigh a lot and buried deep in the soil,

you think things ain’t right and everything is sinking

Best I can tell what’s broke is our thinking.

assistedliving's picture

you gotta include that Chinese distribution center:  WMT in any market indicator.  Both from a labor ("coolie") and retail POV

NoIdea's picture

What happened to AAPL being the most important stock?

Allen_H's picture

Geez, and I thought it was just hot air holding up the market,