The S&P 500 closed at an all-time high this week, and weekly jobless claims jumped up above 1 million again after several weeks of a downward trend. The U.S. Postal Service was in the spotlight as concerns were raised around the Postal Service’s ability to handle what is expected to be a significant increase in mail-in ballots come November.

Weekly Returns

S&P 500: 3397.2 (0.7%)
FTSE All-World ex-US (VEU): (-0.3%)
US 10 Year Treasury Yield: 0.58% (-9.86%)
Gold: $1,901.49 (-0.3%)
EUR/USD: 1.165 (-0.4%)

Major Events

• Monday – The Wall Street Journal reports that the Coronavirus is taking a high toll on working parents, who are finding an elevated need for childcare in the face of stay at home schooling & work.
• Monday – The Trump administration opened the Arctic National Wildlife Refuge for Oil drilling – for the first time since 1980 when Congress designated the area protected.
• Tuesday – The S&P 500 hit a record high, after a sudden and unprecedented decline in the months of March & April.
• Wednesday – Federal Reserve minutes were released, indicating that the Fed remains concerned about the impact of the Coronavirus, and that rates are expected to stay low in the near term as a result.
• Wednesday – Apple’s stock price trades above $467.77, making the company worth more than $2 trillion dollars, a first for any US company.
• Thursday – U.S. Department of Labor reports a spike in new unemployment claims, which had been declining over past weeks.
• Thursday – The state of California ‘blinked’ on Thursday as an appeals court paused the court order to reclassify Uber/Lyft’s drivers as employees. Both Uber & Lyft had planned to cease all California operations Friday in response to the original court order.
• Friday – Actress Lori Laughlin received a 2-month prison sentence for her actions in a college admissions scandal.

Our Take: Is Big Tech Pricing Rational?

This week as Apple crossed the threshold of becoming a $2 trillion-dollar company, some investors paused to take note of its rapid rise in value. Curiously, while Apple’s stock price has roughly tripled since early 2019, so too has its Price to Earnings ratio. A ‘PE’ Ratio is a measurement of a company’s stock price, compared to its earnings, and represents the price investors are willing to pay for each dollar of a company’s earnings.

The fact that Apple’s PE ratio has tripled alongside the stock price, signals that while Apple stock has done well since early 2019, price appreciation has very little to do with company earnings growth.

It seems that investors might be willing to pay more and more, for the same level of earnings. This begs the question of whether investors are being rational in their approach to investing. Admittedly, investors may simply have high hopes for the future prospects of the company, in that they are willing to pay more today for the same level of company profit, with an expectation that the company will become even more profitable in the future.

But companies with the size and market reach such as Apple might have a rough path forward if they’re going to meet investor expectations – as prices are already starting to reflect high future expectations. Apple, and other tech companies like it, are great companies in our opinion, but history shows the biggest companies usually don’t stay at the top forever. Apple’s price appreciation since 2019, and its lack of commensurate increase in earnings, could be a signal that investor expectations have become overblown. Time will tell, but perhaps this acts as a contrary opinion to what seems to be the majority opinion: That tech stocks remain the place to be.