“Alternative Fact”: 40% Of US Companies Are Losing Money

I thoroughly enjoy exposing investors to “alternative facts.”

Just call me “Kellyanne Conway” (there’s something I never thought I’d say).

Equity markets provide plenty of opportunities when it comes to shedding light on inconvenient truths. For instance, over the weekend I noted that the post-election rally in US stocks is entirely attributable to multiple expansion. Investors are willing to pay more for a dollar of earnings than at almost any time in history, thanks largely to Donald Trump’s promises about how “phenomenal” his tax plan is (eventually) going to be.

Well on Monday, as S&P futs approach levels last seen in September of 2006, I’ve got some more “truthiness” for you.

Consider the following from SocGen’s Andrew Lapthorne, who notes that despite the headline index levels, around 40% of US companies are losing money.

Via SocGen

Global equity markets continue to move higher, with both the MSCI & FT World Indices hitting all-time highs last week and the S&P 500 specifically hitting a new closing high on Friday. So all would appear to be rosy in the equity market with the consensus promising higher EPS growth in 2017 and bond yields remaining reasonably well behaved despite higher headline rates of inflation and a very slightly more hawkish tone from the US Federal Reserve.

The stock universe we use to create the chart shown below is large, encompassing some 15,000 developed world listed equities, with around 4,500 listed both in Europe and the US. As such, it is a far broader measure of corporate prosperity than the headline indices we typically focus on. Remarkably, c. 40% of US companies (1,700) are still currently loss making (i.e. have negative net income), a fact you won’t be aware of if you rely solely on the record breaking S&P 500 and MSCI World indices.