There’s FAAMG and Everyone Else

May 20, 2020 | Samantha T. Grant, CFA, CAIA, Assistant Vice President

Since the S&P 500 bottomed on March 23rd, the stock market has taken off while economic fundamentals have worsened. As of May 15th, the S&P 500 was up 28.4% from its trough while unemployment stands at 14.7%, April retail sales fell 16.4%, and industrial activity dropped by 15.5%. The S&P 500 has recouped more than 50% of its losses and sits just 15% below its all-time high.

Digging deeper into the underlying performance of the market, it becomes evident that not all of Wall Street has participated in the rebound. Market breadth, which compares the number of stocks that have gained relative to the ones that have declined, has been especially narrow. As a result, the market can be separated into a relatively few “Haves” and many “Have Nots.” The “Haves” are the largest five companies in the S&P 500: Facebook, Apple, Amazon, Microsoft, and Google (FAAMG) and the “Have Nots” are the other 495 companies in the index. Year-to-date as of May 15, 2020, the top five stocks returned 11.8% and outperformed the bottom 495 stocks before, during, and after the market decline. The bottom 495 stocks returned -15.3% year-to-date, representing a 27% performance gap. This leads us to two questions: Is the market rebound warranted? And, will the performance dispersion between the “Haves” and “Have Nots” fade anytime soon?

Equity markets are a forward-looking indicator of economic and corporate conditions. Yes, current fundamentals are not good, but analysts expect economic growth and corporate earnings to rebound later this year and into 2021, along with the development and release of a vaccine that can eradicate further outbreaks of COVID-19. In addition, stock markets often trough before the release of the worst economic data and before recessions end. Therefore, the forward-looking nature of the market seems to justify the market rebound to date.

Regarding the “Haves” and “Have Nots”, the market seems to believe the winners are large Technology companies and the losers are everyone else and/or any company exposed to COVID-19. There is fundamental support to favoring FAAMG. For example, Microsoft reported a 15% increase in sales, Google surpassed revenue expectations despite the potential for a decrease in advertising sales, and Apple has one of the most cash-rich balance sheets in the country. So, it is plausible that these stocks can continue to outperform. The longest period of similarly narrow breadth occurred in the two-plus years leading up to the bursting of the Tech Bubble. Consequently, periods of narrow breadth are often a harbinger of market declines and have “signaled below-average 1-, 3-, and 6-month S&P 500 returns as well as larger-than-average prospective drawdowns.”¹ We know that eventually the other 495 stocks in the S&P 500 will have more attractive fundamentals and will command higher prices. At that point, the return dispersion between the “Haves” and “Have Nots” will normalize, we just do not know when, though it will likely coincide with more positive economic data and greater containment of the coronavirus pandemic.

Print PDF > There’s FAAMG and Everyone Else

¹ Goldman Sachs Portfolio Strategy Research, May 1, 2020. “U.S. Weekly Kickstart.”

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Samantha T. Grant, CFA, CAIA
Assistant Vice President

Get to Know Samantha

Related Content

Column chart showing survey results by percentage of respondents. Chart subtitle: Market professionals respond: "How much do you agree or disagree with the following statement? Currently, there are many bubbles in financial markets." Chart description: Y-axis shows % of respondents ranging from 0-60%. X-axis shows columns by "Strongly agree, Slightly agree, Neither agree or disagree, Slightly disagree, and Strongly disagree." 37% strongly agree, 52% slightly agree, 5% neither, 6% slightly disagree, and 1% strongly disagree. Chart source: dbDIG Survey, Deutsche Bank Research. Data was released this week.

01.22.2021

Bubble, Bubble, Toil, and Trouble

In Shakespeare’s Scottish play Macbeth, three witches prophesize the protagonist’s imminent rise and fall. This week, Deutsche Bank released its…

01.21.2021

2021 Market Preview

2020 was a year like no other and has left investors across the world wondering what the future looks like….

Graphic of darkened photo of city buildings, with guidance pattern overlay and "2021 Market Preview" in white.

01.21.2021

2021 Market Preview Video

This video coincides with our 2021 Market Preview newsletters and provides a high-level summary of each,…

Chart subtitle: Projected GDP growth rates across the globe more optimistic heading into the year. Chart description: Bar chart showing Annual GDP Growth Rate on y-axis, with 2019 Actual, 2020 Projection, and 2021 Projection for (x-axis) World, United States, European Union, United Kingdom, Germany, Japan, Emerging Markets, China, and India. All categories show positive for 2019 and 2021 projection; all categories except China negative for 2020 projection. Chart source: IMF.

01.14.2021

Glass Half Full?

As we are beginning to see a possible finish line on the COVID-19 front, there is an expectation in the…

01.12.2021

Tech Bubble Revisited? Contrasting the Current Landscape with the Dot-Com Boom and Bust

Continued strong performance of technology-oriented stocks through disparate economic environments, elevated valuations, and increasing concentration within the growth space have…

Line chart showing M2 Money Stock in teal and Velocity of M2 Money Stock in green. Chart subtitle: M2 continues to grow while money velocity dips. Chart description: Left Y-axis shows $ in billions, ranging from 0-$20,000. Right Y-axis shows Velocity from 0.0-2.5. X-axis shows time since January 2000, through August 2020. Recessions are marked by shaded grey bars, denoting the dot-com bubble in the early 2000s, the Global Financial Crisis in 2008, and the current recession which began in March 2020. M2 Money Stock line begins near $4,000 in January 2000 and is currently near $19,000. Velocity line begins near 2.0 in January 2000 and is currently near 1.2. The two lines converged around October 2015. Recently the M2 Money Stock has climbed sharply and Velocity dipped significantly in 2020 but most recently slightly grew. Chart source: Federal Reserve Bank of St. Louis as of December 31, 2020.

01.05.2021

Is Velocity Stifling Inflation Amid Record Growth of Money Supply?

Inflation has remained well below 3% in the United States for nearly a decade despite a record economic expansion and…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >