The Mighty & All Powerful NASDAQ: Where Does The Tech Heavy Index Go From Here?
On Friday, for the first time ever, Apple crossed above a $3 trillion market value. This milestone caps a ~60% move this year and is something to simply marvel at.
We live a world with decoupling, supply chain snarls, rising interest rates and slowing global growth but nothing seems to matter to AAPL.
It may be a purely symbolic number but like a cherry on a sundae, it is a symbol with power.
Why?
Well, Apple is now not just bigger than any other company but it is also bigger than many countries' entire stock markets. That's not a typo. The Cupertino giant has a larger market size than every stock in the United Kingdom's FTSE 100 or Canada's TSX or France CAC 40 or Germany's DAX etc.
It is so large that it is even difficult to find comparators. For instance, Apple's stock valuation is not just bigger than the UK's FTSE 100 but also larger than all 595 companies that are listed publicly in that country. Similarly, it is also larger than all the public companies in France (235 companies), and India (1,242 companies) and the list goes on. You get the picture.
Speaking of pictures, here is a 20 year chart of Apple vs the S&P 500, one of the world's best performing major stock markets during that time frame:
It isn't just Apple however.
The broader NASDAQ is also up 28%+ so far this year.
That isn't just good. That is an incredible performance. In fact, it is the best first half of the year since the early 1980s.
1983 to be exact. See here:
And it isn't just the NASDAQ either. Every major US index is now positive and accelerating higher. After months of treading water even the Russell 2000 index of small US companies is up 5% over the last month.
As we have mentioned before, this rally has been very, very narrow. This theme has only continued. Just two stocks - Apple and Microsoft - now account for over 14% of the S&P 500 and 6 weeks after we first discussed this fact, they are still the lion share of the current rally.
You can read about the narrowness theme (and why narrow markets and vulnerable markets!) above ^^ and check out our Super 7 Pebble theme right here.
While this strong performance is obviously very wonderful for most investors, the narrowness opens up the possibility of a very vicious and sudden selloff
It only takes a few companies to have some negative news for the rally to lose steam.
However, more immediately, there are two things to keep in mind:
No one had this happening at the start of the year (including us).
In the immediate term, this rally no one saw coming is hitting a stretch that is typically very positive for the stock market.
We were both very unusually positive on the stock market at the start of 2023 but also in no way believing that you would see a 30% return for the tech-heavy portion of the index.
As ever, this is a tough business. Perhaps only marriage will keep you more reliably humble?
We cover some of WHY this rally is happening in our next story but looking forward it is worth pointing out that historically this has been a great stretch for the stock market over the next few weeks.
It might come as a surprise but the first 15 days of July have historically been the best two-week trading period of the year all the way back to 1928.
Here is what that looks like by Goldman Sachs' Scott Rubner:
For added context, this is a chart of the average S&P 500 performance every year in June and July in aggregate. So, that line is a combination of every single one of those months' returns going back nearly a century.
Of course, past performance is never proof of future returns but it does suggest that the rally that has surprised everyone could keep heading higher over the very short term.
As we have argued over the last few editions, this could be a great time to start taking profits and getting cautious as a short term frenzy truly takes hold.
At the very least you could start setting stops which will sell automatically if the market or your individual's asset breaches beneath a certain level (decided by you).
The stock market could sell off but that isn't the only option. It could also rotate. Out of the few big tech companies and instead towards some of the smaller and less expensive names.
Why?
The US stock market and the US economy increasingly stand alone. That is wonderful news for Americans but does mean that not just the stock market could be vulnerable...
For that we should turn to the next story....
*******
Have questions? Care to find out more? Feel free to reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.
