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Herd Mentality: 10 Stocks Are Driving Returns
This week investors are cheering a global rally in stocks spurred on by the presidential elections in France. But upon closer inspection, we see that this year's gains have not been driven by domestic or global events or earnings, rather, over half of the S&P 500's advance in 2017 through mid-April come from just 10 stocks, primarily tech and internet companies. And a full one-third of the increase this year comes from just 3 stocks: Apple, Facebook and Amazon
Renewed appetite for technology stocks and a rally in the so-called "Fangs" (Facebook, Amazon, Netflix and Google-parent Alphabet) has spurred record gains for the Nasdaq in 2017, (see Nasdaq milestone below). Despite stumbles on the Trump administration's domestic agenda, investors remain hopeful, particularly after the White House signaled plans to introduce legislation that aims to reduce the corporate tax rate to 15%, from 35%. Tech companies in particular would stand to gain from President Trump's tax agenda because they could benefit from his call to let companies bring back, or repatriate, cash sitting overseas at a one-time lower tax rate. Apple alone has $246 billion in cash ---- more than $230 billion of which is held outside the US. Microsoft, Google, Cisco and Oracle collectively hold another $340 billion in cash, much of which is overseas.
Through last Friday, the S&P 500 was up nearly 5% year to date, but some key stocks, as highlighted in the chart below, were up considerably higher (Phillip Morris 25%, Facebook 23%, Apple 23% and Amazon 20%).
Click here to see a larger version of the exhibit.
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Despite some mixed earnings reports, stocks across all the major indices ended last week with gains. Renewed faith in tax reform, based on comments from Treasury Secretary Steven Mnuchin, helped drive the late week rally and pushed small cap stocks back into positive territory.
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> Election in France: The global rally taking place thus far this week has been propelled by Sunday's election in France.
The first round of the 2017
French presidential election
resulted in no candidate winning a majority, so a
run-off election
between the top two candidates, Emmanuel Macron of the En Marche! party and Marine Le Pen of the National Front party will be held on May 7th.
> Nasdaq Milestone:
For the first time ever, the Nasdaq Composite index breached the 6,000 mark in Tuesday morning trading. The milestone comes 17 years after it first reached 5,000 shortly before the dot-com bubble burst. This rally has been driven by a combination of strong earnings, relief that France seems likely to elect a moderate president, and expectations for big tax cuts under President Trump.
> Treasury Rates:
Many investors came into 2017 believing rates would finally take a straight path higher, but this hasn't been the case. Despite its post-election, generally upward trend, a number of factors have conspired to push rates lower over the past month, including: geopolitical tensions, a potential delay of President Trump's agenda, and shorting of the intermediate term treasury.
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A single cent doesn't buy you much these days, but an old-fashioned copper penny might be worth a whole lot more than you realize.
Because it's so rare, a copper penny in good condition dated to 1943 is likely to be worth approximately $85,000!
A few of these pennies are believed to still be in circulation, so the next time you get change at the grocery store or coffee shop, take an extra minute to examine what's in your hand. You might be glad you did!
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New Market Wealth Management offers modern investment solutions backed by extensive research and experience serving the needs of wealthy families. Through our strategic partnership with
Cliffwater LLC
, we provide institutional-quality research, investment due diligence and asset allocation tools. We believe this level of experience and unique access to in-depth, sophisticated research are essential for success in today's complex world markets.
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