Axios Markets: $3.3 billion to fight inequality

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Axios Markets

By Dion Rabouin ·Sep 28, 2020

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📺 Tonight on "Axios on HBO":

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🎙 "Before you embark on a journey of revenge, dig two graves." - See who said it and why it matters at the bottom.

1 big thing: Fortune 100 commit $3.3B to fight inequality

Data: Fortune 500, Axios analysis of company statements, get the data; Chart: Andrew Witherspoon, Naema Ahmed/Axios

Axios' Andrew Witherspoon and I write: Big businesses continue to push funding toward fighting inequality and racism, with the 100 largest U.S. companies' monetary commitments rising to $3.33 billion since the death of George Floyd at the hands of Minneapolis Police earlier this year, according to an Axios analysis.

Why it matters: The continued pace of funding commitments shows that months after Floyd's death there remains pressure for the wealthiest corporations to put their money behind social issues and efforts.

Even without including donations made by firms outside the Fortune 100, the total through Sunday was the largest outpouring of investment of its kind, though it accounts for just 0.6% of the 100 companies' collective 2019 profits.

Driving the news: The jump from $2.05 billion in mid-June to $3.3 billion is thanks largely to a new commitment of $1.15 billion from Citigroup that will span multiple years.

It includes $550 million to support homeownership and affordable housing and $100 million in grants to "support community change agents addressing racial equity."
"Addressing racism and closing the racial wealth gap is the most critical challenge we face in creating a fair and inclusive society and we know that more of the same won't do," Citi CEO Michael Corbat said in a statement announcing the funding.

IBM announced it was donating $100 million in assets, including "university guests lectures, curriculum content, digital badges, software and faculty training" to select Black colleges by the end of 2020.

Since June, companies ranging from Costco ($25 million) to Phillips66 ($55,000) have announced new pledges or partnership with groups like the National Society of Black Engineers, the NAACP, the National Urban League and the National Center for Civil and Human Rights.

Yes, but: The commitments are pennies on the dollar of the collective $569 billion in profits the 100 companies made last year, and many lack details about how the money will be used to make a difference.

By the numbers: The lion's share of money pledged comes from a few companies, with $2.55 billion of the $3.33 billion total coming from three companies, and the top 10 companies pledging $3.08 billion.

Two companies — both banks — have pledged more than $1 billion each to help close the racial wealth gap and provide support to Black and other minority communities.
The top 10 companies committed to an average of 1.62% of their 2019 profits.
The other 47 companies have committed 0.07% of their 2019 profits.

2. Catch up quick

President Trump paid $750 in federal income taxes in 2016 and in 2017 and paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made. He now faces hundreds of millions in personally guaranteed debt payments, according to a report based on the president's taxes. (NYT)

Following the WTO's ruling against the U.S. over its tariffs on Chinese imports, about 3,500 U.S. companies, including Ford, Tesla and Home Depot, have sued the Trump administration for its "unbounded and unlimited trade war impacting billions of dollars in goods." (Reuters)

A federal court judge on Sunday granted TikTok's request for a temporary restraining order against a ban by the Trump administration, and Americans can continue downloading the app — for now. (Axios)

3. Big Tech's share of the S&P 500 reached record level in August

Reproduced from The Leuthold Group; Chart: Axios Visuals

The gap between the weighting of the five largest companies in the S&P 500 and the 300 smallest rose to the highest ever at the end of August, according to data from the Leuthold Group.

Why it matters: The concentration of wealth in a few massive U.S. tech companies has reached a scale significantly greater than it was before the dot-com bubble burst.

In August, five companies — Apple, Microsoft, Amazon, Facebook and Alphabet — held a share of the S&P 500 that was 9% greater by market cap than the index's 300 smallest companies. This was a record amount.

What they're saying: "These trillion-dollar tech juggernauts have boosted their market-cap weight in 11 of the past 12 months — zooming from 15.8% of the S&P 500 last September, to 23.9% in August," Phil Segner, a Leuthold Group research analyst, said in a recent note to clients.

"What's even more remarkable is that this trend has persisted during a 33% downdraft and a 60% updraft. September's relative wobble in the 'Top 5' has trimmed its weight back to 21.7%, which is the largest month-to-month decline since 2000."
"Even with the trim, the current weight of the S&P 500's Top 5 is still well above the Tech Bubble's high of 18.1%."

A message from Global X ETFs

Emerging economic trends, visualized

Explore our latest edition of Charting Disruption, a quarterly flipbook that illustrates emerging trends in technology, demographics and the physical environment through data visualization.

This quarter we examine e-commerce, virtual learning, telemedicine, and more.

4. Companies are still holding back guidance

Reproduced from FactSet; Chart: Axios Visuals

More companies are releasing earnings guidance for the third quarter and raising expectations, but the number of S&P 500 companies providing guidance remains well below traditional averages.

By the numbers: Just 53 S&P companies issued future guidance in the second quarter, about half of the five-year average (104) and the lowest number since record keeping began in 2006, FactSet's data show.

For the third quarter that number is up to 67 so far, or 36% below the average, with 45 companies issuing positive earnings guidance.
More than 100 S&P 500 companies have either withdrawn or not provided annual EPS guidance for 2020 or 2021 to date.

What they're saying: "Most of these companies cited uncertainty around the impact of COVID-19 as the reason for not providing annual EPS guidance," John Butters, FactSet's senior earnings analyst, writes in a release.

"Thus, it appears this uncertainty is also causing many S&P 500 companies not to provide short-term EPS guidance as well as long-term EPS guidance at this point in time."

Where it stands: Despite the improving picture (on June 30, Q3 earnings were projected to decline by 25.3%), earnings are again expected to be deeply negative in the third quarter, falling by 21.2% for the second worst quarter since Q2 2009.

Earnings declined by more than 30% in Q2.

5. The Challenge: Approaching the finish line

Data: FactSet; Chart: Axios Visuals

Barring a spectacular collapse this week (knock on wood), I should hold on to defeat my 18-year-old cousin in our investing challenge for the quarter — though neither of us are doing all that great.

On the bright side: I am beating both the S&P 500 and the Nasdaq during the period. Since July 20, the S&P is up 1.43% and Nasdaq has edged up just 1.36%. But I'm trailing the Dow, which has gained 1.85%.

Background: Senya graduated from high school earlier this year and as a graduation present I sent her $500. I told her she had to invest it and that each quarter we would compete to see who could assemble the best portfolio.

Portfolios: I've got a double serving of gold ETF, IAU; the Direxion work from home ETF, WFH; and EMQQ, the emerging market eCommerce ETF.

She's holding logistics REIT Prologis, eBay, Rite Aid, Gap, and Conagra.

State of play: September has been a rough month. We were both up around 9% at the highs on Sept. 2, and things have gone downhill since.

Gap continues to kill it and is up 31% for Senya. Unfortunately, Rite Aid is down 36%, and eBay is off by 10%.
If she had just invested it all in Gap like she originally wanted to, she'd be winning by a mile right now.

The lesson: Invest with conviction or don't invest. Diversification for diversification's sake is not always beneficial.

Though if she had put all her money in Rite Aid she'd have lost a third of it by now and would probably never want to invest in the stock market again.

A message from Global X ETFs

Visualizing emerging trends in tech

Explore our latest edition of Charting Disruption, a quarterly flipbook that illustrates emerging trends in technology, demographics and the physical environment through data visualization.

This quarter we examine e-commerce, virtual learning, telemedicine, and more.

Thanks for reading!

Quote: "Before you embark on a journey of revenge, dig two graves."

Why it matters: On Sept. 28, 551 BC, Chinese poet, teacher and philosopher Confucius was born.

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