After a good start to the year, Q2 has been an interesting quarter characterised by the AI related excitement in markets with the narrowest leadership that I have seen in my time in the industry. In early July, we saw Apple close trading with a market capitalisation above US$3trillion, the first for a publicly traded company. Apple’s valuation had surpassed that of five of the S&P 500’s 11 sectors in their entirety – materials, real estate, utilities, energy, and consumer staples.
In Sterling, Apple’s market capitalisation would be around £2.4trillion, which is larger than the entire FTSE 100 – including stalwarts such as Shell Plc, BP Plc, AstraZeneca Plc, Tesco Plc and BT Group Plc. The AI theme led to the largest five stocks in the index, Apple, Microsoft, Amazon, Alphabet, and NVIDIA, making up 24.6% of the index’s market cap: the highest percentage since at least 1972. As the US dominates global stock markets, if you didn’t hold these stocks, returns looked very different than headlines might suggest.
It is also worth noting that for comparison, the US S&P 500 index historical average Price to Earnings Ratio (PE) is 16.2 and last week NVIDIA had a PE Ratio of 238…. Interesting times indeed.
The first quarter market narrative of imminent recession in the US and other regions, has reduced, but it is impossible to see if we are heading towards a Goldilocks like soft landing, or a disguise for the hard landing that is still to come.
