Only five shares represent almost a fifth of the total market capitalization of the S&P 500, the highest share since the dotcom bubble peaked at the end of the century.
Are there worrying parallels between the rise of
full board 0.95%
and the unfortunate boom of the 2000 dotcoms?
Goldman Sachs Group Inc.
He says not yet.
On the one hand, the five largest companies in the stock market do not seem as expensive as their 2000 counterparts.
In March 2000, Microsoft,
Cisco Systems Inc.,
General Energy Co.,
Exxon Mobil Corp.
it constituted 18% of the market capitalization of the S&P 500. The five companies quoted 47 times the expected earnings, according to Goldman. The five largest companies today quote 30 times the expected earnings, which does not make them a bargain, but they are still less expensive than the shares that dominated the stock in the early 2000s.
The technology giants that drive the S&P 500 today also reinvest much more of their profits in their businesses than their predecessors.
The five companies channel around 48% of their cash flow from operations to capital expenditures and research and development expenses, according to Goldman, well above the average of 21% of the S&P 500 and the average of 26% for the five largest companies in March 2000.
Then there are the profits. Apple, Microsoft, Facebook and Amazon reported quarterly results last week that showed that their core businesses remain firm, even in a downturn economic environment.
Apple, for example, recorded record revenue in its last quarter, thanks to strong sales of its iPhone and an increase in sales of products such as its AirPods applications and wireless headphones. The growth in its cloud computing offerings helped Microsoft deliver record sales. Facebook and Amazon also recorded double-digit percentage revenue growth.
Will companies be able to maintain their growth record? It is not clear. Money managers say there are still risks that long-standing problems such as regulatory scrutiny and changes in user behavior can affect the technology sector. The shares have also been among those most affected by the waves of sales that the stock market has suffered in recent years, something that investors have attributed in part to the crowded positioning in the growth trade.
But for now, Goldman says there are reasons to believe that today’s S&P 500 giants are different.
“Lower growth expectations, lower valuations and a higher reinvestment rate suggest that the current concentration may be more sustainable than it turned out to be in 2000,” the firm said in a note.
Write to Akane Otani at [email protected]
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