This is the greatest threat to Big Techs S&P 500 dominance, Goldman says – MarketWatch

The market leadership of the S&P 500s five largest stocks Facebook FB, +0.18%, Amazon AMZN, +1.05%, Apple AAPL, -0.74%, Microsoft MSFT, -0.38% and Google owner Alphabet GOOGL, -0.95% (FAAMG) is under threat from a number of risks on the horizon, according to Goldman Sachs analysts.

The group represents 21% of the index, they said, higher than the 14% average share typically held by the top five stocks.

While the prospect of decelerating U.S. economic activity supports Big Techs outperformance and the groups remarkable growth looks set to persist, analysts, led by David Kostin, noted several headwinds around the corner.

They said President Joe Bidens plans to raise corporate and capital-gains tax rates pose potential risks to the quintet.

The proposed 28% corporate tax rate would hit FAAMG earnings by 9% relative to the consensus, they said, while the latter, a potential near-doubling of the capital-gains tax rate for wealthy Americans, could spark a selloff later this year.

If the capital-gains tax rate becomes set to rise in 2022, investors subject to the higher rate may choose to realize some of their substantial capital gains in 2021 at the lower current tax rate, the analysts said.

They noted that FAAMG stocks have appreciated by $5 trillion in the past five years, or 29% of the S&P 500s market cap increase over that time.

The groups valuation multiples also presents a risk, as does the possibility of rising interest rates in the coming months. Goldmans rates strategists predict 10-year U.S. Treasury yields TMUBMUSD10Y, 1.628% will rise to 1.9% by the year-end. As yields rose sharply from November through March, FAAMG underperformed the S&P 500 by 7 percentage points (+21% vs +14%%). A similar period of rising rates in the second half of 2021 would likely hamper FAAMG returns, Kostin said.

However, the 10-year U.S. Treasury yield remains extremely low in historical terms, supporting the valuation of high growth stocks.

But those all pale in comparison to what Goldman analysts described as the groups greatest threat antitrust intervention.

With the exception of Microsoft, the other four face a laundry list of legal battles and investigations over their market power and competitive practices ranging from commercial litigation to DOJ [Department of Justice] and FTC [Federal Trade Commission] antitrust lawsuits to Congressional probes, they said. But they added that their relative valuations remain stable, implying no major impact from antitrust actions.

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This is the greatest threat to Big Techs S&P 500 dominance, Goldman says - MarketWatch