Just 10 Companies Account For 33% Of All Market Gains Since Trump's Election

Yesterday we laid out the reasons why French bank SocGen unveiled a surprisingly contrarian forecast, according to which the S&P would tumble from its current level over 2,600 to 2,000 in 2018, representing a more than 20% bear market drop...

... the drop catalyzed by rising interest rates pressuring P/E multiples, a late cycle economy nearing recession, equities trading at record valuations, and with everyone short vol begging for a vol short squeeze. Not surprisingly, SocGen's unspoken advice was to get out now.

And while many of the negative factors highlighted by SocGen had already been discussed here in the past, there were two we warned to bring attention to: the market's multiple expansion since Trump's election, and the narrow leadership in the S&P.

As we noted yesterday, contrary to the widely accepted narrative, while the S&P 500 has risen 24% since Trump's election, only half of this performance has been driven by earnings growth; the other half is from P/E expansion. But why would P/Es rise at a time when the Fed is tightening? As SocGen speculated, assuming that analysts have not factored tax reform into their earnings forecasts, tax reform expectations have been the driver of P/E expansion. There is a problem with this: while the S&P 500 index tax rate is currently 26.6%, assuming that US companies generate 43% of their profits abroad (here) and pay 35% of their US profits on taxes (i.e. with no loopholes for US profits), the average tax rate outside the US would be 15.5%. A decrease in the US tax from 35% to 20% as planned by Trump’s tax reform would thus theoretically boost earnings by 8.5%. The 12-month forward P/E has risen 12% over the last 12 months. In other words, roughly 150% of Trump's tax cuts have been priced in!

However, another especially interesting observations goes to the leadership of this 24% rally since Trump's election, which - while hardly a surprise - was largely driven by a handfull of companies, or ten to be precise.

As SocGen calculates, just 10 contributors of the S&P 500’s bull run have accounted for 33% of the S&P 500 performance. Tying to the above, the bank also points out that all of the companies listed below have seen their P/Es expand over the last 12  months, in some cases - like Nvidia, WalMart, Boeing and Amazon - dramatically. In fact, only three companies (Apple and the two banks) have 12-month P/Es that are below the market average (18x). Lastly, keep in mind that except Amazon, all of the companies already pay a  corporate tax rate below the current US federal tax rate (35%), and five companies even pay a tax rate that is below the 20% rate targeted by Trump’s tax reform.

As we asked two days ago when we showed that the bulk of hedge funds gains in 2017 have come from holding this same handful of companies, what happens to hedge fund performance - and the S&P 500 - when, for whatever reason, the tide turns and the winners are the first to be sold?


small axe Fri, 11/24/2017 - 10:14 Permalink

the rise of our surveillance state could provide even more upside for big tech. Not too late to get a foot in door. A lot of upside with drone assassination strikes too, Boeing looking good. Plus wages are sure to keep stagnating, so Walmart is a buy. And Zuckerberg... Facebook to the moon when he's elected President!

pigpen Fri, 11/24/2017 - 10:15 Permalink

The monopolies. Funny how that works. Time for every citizen to take back their data.Install brave browser by DEFAULT blocks advertising, malware and tracking.Run all social media from brave browser including YouTube - no advertising.What is digital advertising worth if ad can't be served, viewed and tracked.If government won't break up these monopolies then it is incumbent for the citizens to do so.Cheers,Pigpen

Escrava Isaura pigpen Fri, 11/24/2017 - 10:50 Permalink

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pigpen: ….is incumbent for the citizens. Can you generate growth, jobs, and exports? If you can, you too will get money. Téa Leoni …if citizens can’t tell the difference between fact and fiction, then the entire project of civilization turns to dust.” — Téa Leoni  

In reply to by pigpen

SeaMonkeys pigpen Fri, 11/24/2017 - 11:15 Permalink

100% agreed. The elites want mindless consumers, who are all emotions and nerves, who identify with only Red or Blue, and who never look past the political/cultural circus to think about the economics of our society.The real issues are never discussed in the mainstream. Brick and mortar investments are decreasing, and the only game in town is rent-seeking and monopoly. This supposed capitalist country is nothing more than a country of dogs on a leash.

In reply to by pigpen

Anon2017 pigpen Fri, 11/24/2017 - 11:26 Permalink

Place a credit freeze at each of the credit reporting agencies. Check with your state's attorney-general web site for details on how to do this. The cost to place a freeze is nominal as is the cost of temporarily lifting one. The day you become a victim of ID theft and have to spend many hours trying to untangle your finances is the day you will wish you had taken this extra protective step.I have been using the brave browser for several months and like it. If you have any issues on a particular web site, you can always use another one such as Firefox or Chrome for that web site.

In reply to by pigpen

Raul44 Fri, 11/24/2017 - 11:46 Permalink

Then of course, why wouldnt you fire 5000 workers and invest in your own stocks rather than production, when system directly attack productive and subsidize the gamblers. And people then blame wrong people as usual. 

EternalAnusocracy Fri, 11/24/2017 - 12:08 Permalink

Bitchezz:  A few key points:1.  The GLOBAL economy is going to grow by many times in the next 20-30 years.  A huge swath of humanity is being brought into the corporate economy, from an agrarian or simpler economy.  The Chinese economy will continue to grow for the next decade or possibly two.  The Indian economy will grow rapidly for the next 25-30 years. 2.  In light of #1, invest in companies that have exposure to the Chinese and particularly, Indian economy.3.  Yes, yes, India is a shit-hole today but the point is they are going to built trillion dollars worth of roads, rails, ports, TOILETS, and every other conceivable shit over the next 25 years.4.  USA plebs are fucked and in debt.  As I often write on this site, a fucking Kalahari bushman with is fully paid off loin cloth and water jug has more in assets that half the debt ridden Americans.  For those who live in the USA, live simple, pay off your debts, and put your investments in large companies that are going to have a piece of the pie in China and India growth story for the next 25 years.5.  Buy some Gold (obviously phyzz).6.  The "average American" is in very bad shape financially, health-wise (both mental health and physical).  The social breakdown is very real, in no small part due to the break-down of the family unit, and other obvious factors.7.  Therefore, the bottom line is the world is going to continue to grow and develop.  If ZH Bitchezz wish to profit from it, then put some money in big global companies that make real world stuff that people need, and pay your fucking debts off.8.  Do not dream of a debt Jubilee.  The future of the poor wage slave is a face crushed by a human boot.... forever.   9.  Don't be a poor wage slave.  Happy Thanksgiving.

SheHunter Fri, 11/24/2017 - 13:45 Permalink

for those of you who get off watching bubbles inflate and are game to jump in for a quickie scalp SQ is mucho entertaining.  PayPal competitor.  Run by TWTR entrepreneur Dorsey.

ds Fri, 11/24/2017 - 23:23 Permalink

The strategy is asset lite, market share and supply chains. The markets take care of you thereafter. They are bigger than nations who will bend or become wastelands sooner.