Via a Goldman Sachs analyst research note ICYMI (on Friday) covering huge technology shares like Facebook, Apple, Amazon, Microsoft and Alphabet (Google).
GS nominate risk #1 as higher taxes, commenting on plans from the Biden administration for higher corporate and capital gains tax rates:
- proposed corporate tax rate hiked to 28% (note that Biden has indicated a 25% compromise rate)
- “FAAMG stocks have appreciated by $5 trillion during the last 5 years, accounting for 29% of the S&P 500 market cap increase during that time” … and thus a drop in these stocks will have an outsized impact on index values
#2 is the ‘higher interest rates’ usual suspect:
- low rates have been a key support for valuations for over ten years now
- the time of near zero rates could be approaching an end though
- “All five FAAMG stocks … are especially sensitive to moves in long-term interest rates“
#3 is increased regulation … GS go as far as to say “Looking forward, the greatest fundamental risk to the continued market leadership of the five largest companies appears to be the potential intervention of regulators
- … legal battles and investigations over their market power and competitive practices ranging from commercial litigation to DoJ and FTC antitrust lawsuits to Congressional probes”
GS do note on #3 though that Google has soared since the launch of the DOJ investigation (in October 2020 … price from circa $105 to circa $135).
