We are in the midst of earnings season as companies report second-quarter results. Approximately 62% of the companies in the S&P 500 have now reported, with over 82% of companies reporting results better than expectations.

Apple, Inc., among other big-name technology companies, reported results Thursday evening. Apple reported good news on top-line revenue as well as bottom-line earnings, which the stock market rewarded during Friday’s stock market trading session. What does this mean for Apple?

Apple has been near Microsoft for placement as the largest company in the world based on market capitalization (market value). With the recent stock price increase, Apple now owns the top spot. Between the Thursday evening earnings report and Friday trading, Apple’s market value increased by about $115 billion, from $1.67 trillion to $1.78 trillion.

To step back and help put this into perspective, Apple’s increase in value alone is larger than 444 of the 500 companies within the S&P 500. The 10th largest publicly traded company in the U.S. is Procter and Gamble (P&G); they employ 97,000 people and have been in business for over 180 years. P&G was a fan-favorite early in the corona virus-induced shutdown given that the paper products they sell flew off store shelves rather quickly. When comparing market value, you could fit five P&Gs into one Apple.

Apple and some other large technology companies have been performing well and the market has been rewarding them as prices have been appreciating. The key here is in evaluating whether the market price appreciation is moving materially different than the results of the company. This is the core of valuation analysis – evaluating how much investors are willing to pay for the earnings of a company.  

With the continued advance in share prices of the mega-large technology companies, we note that the U.S. stock market has become more top-heavy with relatively few names driving an outsized amount of the overall performance.

Market Comments

• The U.S. stock market (S&P 500) was flat on the week in total, however, experienced bouts of volatility throughout the week as investors faced corporate earnings results, increasing COVID-19 hotspots and lack of progress on a relief bill

• Economic data on personal spending in the U.S. showed an increase of 5.6% in June compared to May, which was above the forecasted amount (source: bea.gov)

• Real, inflation-adjusted gross domestic product (GDP), a measure of U.S. economic activity, decreased 32.9% annual rate in the second quarter which was close to the estimated -34.7% (source: bea.gov)

  • This is the largest decline in post-WWII history

• The price of gold has been trading near all-time highs, while crude oil prices are around $40/barrel which is down 34% since the start of the year (source: Factset, Inc)