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There’s no doubt that the Federal Reserve is the father of the stock market’s feast this year. No turnaround more dramatic has occurred around Christmas Eve since Dickens’ Ebenezer Scrooge turned from the pre-holiday penny-pincher to the Christmas Day benefactor of the Cratchit family.

The Fed’s morph from hawk to dove is illustrated by the expected central bank overnight rate 12 months hence as shown in the chart below.

But here’s the strange part: The stocks that accounted for the lion’s share of the rally are tech giants who don’t benefit from cheaper borrowing costs, because they are net lenders. If the Fed were to raise interest rates, the biggest gainers would be the giant tech firms, who are sitting on nearly a trillion dollars in cash.

In terms of S&P 500 market capitalization, returns to the stock market were concentrated overwhelmingly among companies that LOSE money when rates go down.

As shown in the above chart, four companies – Apple, Microsoft, Amazon and Facebook – accounted for nearly a fifth of the increase in S&P market cap. A dozen stocks accounted for a third of the increase. Most of those are tech stocks; the exceptions were Exxon Mobil (due to the oil price increase), Mastercard, and Verizon (which trades like a bond and actually does benefit from lower interest rates).

There is a misperception of what drives equity returns to the effect that corporations lever up their balance sheets to goose up return on equity. No such thing is the case in the aggregate: as the chart below makes clear, there is a negative relationship between leverage and return on equity.

The highest return on equity is generated by companies that have a negative ratio of net debt to equity. Those of course are the net lenders of the tech sector – Apple, Microsoft, Cisco and so forth. The most levered sectors are utilities, industrials, and transports, particularly railroads.

Leverage is NOT jacking up corporate return on equity, not at least in the aggregate. Lower interest rates are forcing investors back into the stock market, and back into the same stocks that created most of the market cap in the past several years. We saw in 2018 that a blip in earnings can turn high-flying tech stocks into the Wall Street equivalent of a Boeing 737 Max with a malfunctioning stall system. I’m skeptical about tech stocks after the 2019 bounce-back. On this matter, you’re on your own.

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