| Thursday, August 20, 2020 Headlines 1. US markets rally behind Apple 2. US weekly unemployment claims top 1.1 million 3. J&J makes an acquisition and plans COVID-19 vaccine clinical trials 4. Weak breadth behind market records 5. Which company generates the most profits? Markets Closed
 Photo courtesy GettyImages/Mlenny
Markets Today U.S. markets rebounded from early losses to close higher for the day as tech stocks led the charge, again. The Nasdaq reached another record high as shares of Tesla crossed $2,000 per share. Shares of Apple (AAPL) climbed 2% after the company reached the $2 trillion market cap, yesterday. Shares of Apple will split four to one on Aug. 24, which will cheapen the stock and potentially lure in even more investors.
Assets tied to an economic recovery fell today following somber comments from the minutes from the Federal Reserve's last meeting, released yesterday. The U.S. dollar, oil, Gold, and other metals all traded lower.
1.1 million Americans filed for first-time unemployment claims last week, higher than most forecasts. After falling below 1 million claims the prior week, the surprise increase is an indication that companies are laying off their workers as the recovery has either stalled or never actually began in earnest. The toll on the U.S. and other economies has been heavy. The fear is that a second wave of the virus could do even more damage, should it occur. With schools returning and some cities reopening for business, that risk is very real.  Chart courtesy OECD
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Headlines:
 Chart courtesy Thrasher Analytics
The Record-Breaking Rally Lacks Breadth We all know that the stock market recovery has been propelled by a handful of mega-cap tech giants and a couple dozen stay-at-home stocks. What concerns some investors is the lack of market breadth inside the rally. Small and mid-cap stocks that are not benefiting from the stay-at-home economy have barely budged since June. They are more tied to a broader economic recovery, and we are not in one of those.
To put a fine point on it, market technician Andrew Thrasher points out that yesterday was the first time since 2007 the S&P 500 index made a new one-year high while less than half of the underlying stocks enjoyed a rising 50-day moving average. This happened quite often in 1998 and 1999 but was a condition that for the most part disappeared after the dot-com bubble popped.
Market bears say the record highs for the indexes will be short-lived unless more stocks join the rally.
Market bulls say past bull markets were carried by just a handful of stocks too, and that didn't stop them. They expect the laggards to catch up as the economy recovers, which should send the overall market to even higher highs.
Which camp are you in?  Does Profitability Matter Anymore? Once upon a time, stocks were valued by their profitability and investor expectations for their future profitability. The P/E ratio, aka the Golden Rule for stock investing, measures the price of the stock against its earnings or profits, and the forward P/E ratio is a measure of their anticipated profits.
The tech revolution in the 1980's blew that principle out of the water as hard charging companies like Apple and Microsoft appeared on the scene, promising to upend industries and change the way we work and live. Amazon took the profitless road to extremes when it went public in 1997, and Jeff Bezos used to laugh in journalists' faces (mine included) whenever we asked him when Amazon would make a profit. Tesla is barely profitable, but that hasn't stopped investors from making it more valuable than every other major automaker on the planet.
You get the point...
Still, the graphic above, courtesy of HowMuch.net, lists the 50 most profitable companies in the U.S. today. Berkshire Hathaway rules the roost, generating $81 billion in profit last year. The insurance business, which is where Berkshire makes much of its profit, can be very profitable, indeed.
You'll recognize a lot of the other companies on the list, but you might be surprised at how small their profits are compared to their stock prices. Note that Exxon Mobil is the only energy company on this list.
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(chart courtesy YCHARTS)  Shares of Synopsys are up by over 8% after the electronic design company posted Q3 EPS and sales results that beat analyst estimates. L Brands' stock price rose by over 4% amid the fashion retailer reporting Q2 sales results that surpassed analyst expectations.  Shares of the Estee Lauder Companies are down by over 6.5% following Q4 adjusted earnings results that fell short of analyst estimates. Oil companies, such as Diamondback Energy, Marathon Petroleum, and Apache, are down as a result of oil prices falling amid cautionary signals from the OPEC+ alliance. Word of the Day Wire FraudWire fraud is a crime in which a person concocts a scheme to defraud or obtain money based on false representation or promises. This criminal act is achieved using analog or digital electronic communications or an interstate communications facility. These can include a phone call, a fax, an email, a text, or social media messaging, among many other forms. Wire fraud is punishable by prison and/or fines.  photo courtesy loc.gov
Today in History Aug. 20, 1932: Franklin Delano Roosevelt kicked off his presidential campaign with a fiery speech in Columbus, Ohio, putting forth a nine-point plan for economic recovery. Among his proposals: reforms of Wall Street underwriting and trading practices, increased regulation of commercial banks, a more aggressive role for the Federal Reserve, and a crackdown on utility companies. Since nothing—even these radical, Bolshevik-sounding ideas—could seem worse than the then-current state of affairs, Wall Street shrugged. The Dow Jones Industrial Average closed up 0.34 points, at 67.18.
Barrie A. Wigmore, The Crash and Its Aftermath: A History of Securities Markets in the United States, 1929–1933.
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Thursday, August 20, 2020
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