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What Does it Mean When 2% of Stocks Account for 90% of Total Earnings Growth?

After all the ups and downs in the market this year and the uncertainty surrounding the outlook for next year, the S&P 500 has still managed to chalk up a 13% year-to-date gain and is sitting close to a five-year high. Despite this strong performance, the cost to ride this train, so to speak, is still about 12% less than it has been over the past decade. According to FactSet, the forward price-to-earnings ratio for the benchmark large cap index is now 12.6x, down from an average of 14.3x for the past 10 years. It's a factor (and factoid) that allows investors of all shapes and sizes to confidently declare that "stocks are cheap" and still be able to face their kids and get to sleep at night.

But are stocks really cheap?

At least one Wall Street strategist is arguing that they're not, saying a concentration of growth in just a handful of names is distorting the true profit picture. In fact, Morgan Stanley's chief equity strategist and uber bear Adam Parker has compiled a chart showing that almost 90% of the profit growth has come from just 10 stocks. It's a top-heavy reality that masks a far less exciting growth story beneath the broader markets.

"Clearly that seems to be the intent here, to say that underlying all the noise, the market is not as bullish — in terms of the fundamentals — as a lot of people would give it credit for," says Yahoo! Finance senior columnist Mike Santoli says in the attached video. He thinks the market has largely figured this out already -particularly that growth has been concentrated in a few very big companies as well as a lot of large financials that are coming off of very weak prior year results (or what Wall Street calls ''easy comparisons").

For the record, the 10 stocks are Apple (AAPL), Bank of America (BAC), AIG (AIG), Goldman Sachs (GS), Wells Fargo (WFC), JPMorgan (JPM), IBM (IBM), Citigroup (C), General Electric (GE) and Western Digital (WDC).

"It tells me that when you get to this point of a bull market, you have to be a little more selective and actual organic growth becomes scarcer," Santoli says, while pointing out that the math behind this growth analysis is a ''little bit squishy."

"If all companies had exactly the same earnings this year as last year, but one company earns $1 more, that company is worth 100% of the earnings growth, but it doesn't really tell you very much," he says, calling the research revelation of the moment interesting but indecisive. "Ultimately, it doesn't really tell you how you should invest."

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