Apple, S&P, and the reasons why the market is setting all-time highs.
As the world plunged into a coronavirus induced recession, unemployment soaring and many industries not set to recover for years to come — the stock market has defied expectations, reaching two important milestones last week.
On Tuesday, the S&P 500 hit a new high, fully recovering from its heavy losses in March. And on Wednesday, Apple became the first U.S. company to reach a $2 trillion market cap.
How is this possible? We take a closer look at the growing divergence between the stock market and broader economy and how you can best take advantage during these “uncertain times”.
Apple has propelled past oil titan, Saudi Aramco to snatch the title of ‘World’s Most Valuable Publicly Listed Company’ and becomes the first U.S. company to be worth $2 trillion. An extraordinary feat given that the tech giant has effectively doubled its valuation in just two years since reaching the $1 trillion milestone in August 2018.
While Apple initially struggled with supply chain issues at the beginning of the pandemic, the emerging work from home culture has been a boon for the tech giant and contributed to strong online sales. Following its impressive third-quarter earnings where it posted revenue of almost $60 billion and double-digit growth across products and services, and in all of its geographical regions; shares of Apple have surged and are up 57% for the year.
Apple stock is now at an all-time high, trading at roughly $500 per share. Shares are also set to become even more affordable as the company finalises its four-for-one stock split at the end of this month.
The S&P 500 officially ended the shortest bear market in history following three consecutive weeks of gains. The Index has fully recovered from its devastating 30% loss back in March, opening the week at a new all-time high of 3,418.09.
Spurred by the performance of the Index’s five largest companies Apple, Microsoft, Amazon, Facebook, and Alphabet who account for roughly 23% of the index’s value. And coupled with retail (L Brand 209%), homebuilding (Lennar 162%) and energy companies (Halliburton 218%) whose share price have soared since the markets low on March 23.
Surprisingly, only six out of the 500 stocks have fallen — beauty company Coty is down 24%, utility FirstEnergy 14%, biotech Gilead Sciences 9%, Walgreens 7%, Wells Fargo 4% and Intel down 2%.
How is this possible?
Many are wondering how the stock market is setting new highs with unemployment rates hovering over 10% and many industries decimated by the pandemic. The short answer: the stock market is not the economy.
Hope for the future
Investors look at future earnings, growth & potential when investing in stocks. With government stimulus pumping trillions of dollars back into the economy by way of direct payments, benefits, loans to businesses, and additional spending, there is high hope that the economy will bounce back and recover.
Move to Tech
In the last decade, there has been a dramatic shift to more technology-based stocks. Excluding Facebook and Alphabet which are now classified as ‘communications services’, tech companies account for more than 25% of those in the S&P 500. While tourism, restaurants, salons, and ‘mom and pop’ shops have been hit especially hard by forced lockdowns, tech on the other hand, has been better able to adapt to the work from home culture.
The stock market is the best alternative
With interest rates at an all-time low and government bonds paying less than 1%, fixed income investors are finding it increasingly difficult to produce meaningful yields. The stock market, however, is open for business. With a variety of different products to trade and platforms making investing easier than ever before, investors are flocking to the stock market further pushing up stock prices.
During a global pandemic, the stock market might just have become the best option for investors looking to generate promising returns on investment.