The mega-cap stocks that dominate the US markets have enjoyed an amazing bull run. But February’s first correction in years proved things are changing. With that unnatural low-volatility melt-up behind us, it’s more important than ever to keep leading stocks’ underlying fundamentals in focus. They help investors understand which major American companies are the best buys and when to deploy capital in them.

For some years now, I’ve been doing deep dives into the quarterly financial and operational results in the small contrarian sector of gold and silver miners. While hard and tedious work, this exercise has proven incredibly valuable. With each passing quarter my knowledge of individual companies grows, helping to ferret out miners with superior fundamentals and the greatest upside potential. Traders love the resulting essays.

This successful fundamental-research methodology can be applied to other sectors, and even the stock markets as a whole. And no “sector” is more important to the overall stock markets than the biggest and best American companies. So I’m starting this new essay series to analyze their quarterly results on an ongoing basis. Today’s initial foray starts with their latest results from Q4’17, a critical baseline quarter.

With the new Q1’18 earnings season getting underway, Q4’17’s data is getting stale. Optimally this research would’ve been done 6 weeks or so ago. But it wasn’t until long-lost stock-market volatility finally roared back in February and March that it became abundantly clear big changes are afoot. After that it took time to build our necessary underlying spreadsheets and dive into the big US stocks’ Q4 results.

Going forward it will be easier to analyze and publish new quarters’ results much sooner after those quarters end. But getting Q4’17 baseline data was absolutely essential. That may very well prove the final quarter in one of the most-extraordinary bull markets on record. The flagship S&P 500 stock index had powered 324.6% higher over 8.9 years, making for the third-largest and second-longest US bull on record!

That was also just a hair under the second-largest ranking. 2017 was truly the best of times for the stock markets too. Record-low volatility along with extreme euphoria in anticipation of Republicans’ coming massive corporate tax cuts drove the S&P 500 (SPX) 19.4% higher with nary even a trivial 4%+ pullback. Nearly everyone was convinced this idyllic rally could continue indefinitely, traders were utterly enchanted.

A key real-world side effect of last year’s epic stock-market exuberance was sharply-higher spending by households and corporations alike. Late in major bull markets when everyone is complacent and greedy the wealth effect is very strong. People extrapolate their fat stock gains out into infinity, and ramp their spending accordingly. That drives strong growth in corporate sales and profits, greatly reinforcing the elation.

As a contrarian student of the markets and trader, I wasn’t drinking that Kool-Aid. On 2017’s final trading day I published an essay on the hyper-risky stock markets, explaining why a new bear was long overdue. The valuations of the elite SPX stocks were deep into formal bubble territory, running at average trailing-twelve-month price-to-earnings ratios of 30.7x at the time. That would further balloon to 31.8x by late January!

More importantly, the world’s major central banks were pulling away the punch bowls that had directly fueled that vast orgy of stock-market excess. The Fed was starting to ramp its first-ever quantitative-tightening campaign to begin unwinding long years and trillions of dollars of quantitative-easing money printing. And the European Central Bank was drastically tapering its own QE bond-buying campaign.

This unprecedented tightening following radically-unprecedented QE would literally strangle the stock markets, as I explained in late October. The extreme euphoria drowned out those warnings then, but traders are more receptive now after the SPX’s first 10%+ correction in 2.0 years in early February. All this suggests high odds that Q4’17 will prove the final pre-peaking quarter of that central-bank-goosed bull.

Thus I couldn’t wait for Q1’18 data to start this new essay series, I had to get Q4’17’s baseline data no matter what. The world’s most-important stock index by far is the US S&P 500, which weights America’s biggest and best companies by market capitalization. So not surprisingly the world’s largest and most-important ETF is the SPY SPDR S&P 500 ETF which tracks the SPX. This week it had net assets of $252.4b!

That’s a staggering sum, reflecting the universal popularity of index investing late in major bull markets. Two of the next three largest ETFs also track the S&P 500, the IVV iShares Core S&P 500 ETF at $140.4b and the VOO Vanguard S&P 500 ETF at $87.1b. These dwarf the entire rest of the ETF sector. For comparison, the dominant and popular GLD SPDR Gold Shares gold ETF has net assets of just $37.3b.

Unfortunately my small financial-research company lacks the manpower to analyze all 500 SPX stocks in SPY each quarter. Support our business with enough newsletter subscriptions, and I would gladly hire the people necessary to do it! But for now we’re starting with the top-34 SPY components ranked by market capitalization. That’s an arbitrary number that fits neatly into the tables below, but a commanding sample.

As of the end of Q4’17 on December 29th, these 34 companies accounted for a staggering 41.8% of the total weighting in SPY and the SPX itself! They are the biggest and best American companies that are largely-if-not-totally driving US stock-market fortunes. Whether the SPX rolls over into a new bear market or not will depend on how these elite stocks fare. They are the widely-held mega-cap stocks everyone loves.

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