Only 5 companies are driving the growth of the bottom line in the stock market, according to an analysis by Goldman Sachs as the earnings season enters its final stretch.
The firm said “FAAMG” – or Facebook, Amazon, Apple, Microsoft and Google Alphabet’s father – increased their fourth-quarter earnings by 16% year-over-year.
Overall, S&P fourth quarter earnings increased 2%. But without these five actions, profit growth has been flat.
“The strength of mega capitalization gains contrasts with the weakness of small capitalization profits,” said analysts led by David Kostin in a note to customers. “Russell 2000 experienced a 7% decrease in earnings during the fourth quarter, as many smaller companies registered weak front-line growth and had difficulty absorbing the increase in wages and other input costs.”
The “FAAMG” basket represents 18% of the total market capitalization of S&P 500. The last time the value was concentrated between five shares was during the technology bubble in 2000, when Microsoft, Cisco, General Electric, Intel and Exxon Mobil They were the five largest companies in the index.
But this time, Goldman said the market composition seems to be on firmer ground.
“Lower expectations of growth, lower valuations and a higher reinvestment rate suggest that the current concentration may be more sustainable than it turned out to be in 2000,” Kostin wrote in a January 31 note.
So far this quarter, 71% of companies have exceeded earnings estimates, while 65% have exceeded revenue expectations, according to Refinitiv data.
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– CNBC’s Michael Bloom Y Nate Rattner contributed reports.