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Tag: Alphabet Inc. Cl C

  • Amazon is worth more than Alphabet for the first time in 16 months

    Amazon is worth more than Alphabet for the first time in 16 months

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    Earnings season is causing a reshuffling among the ranks of the largest U.S. companies.

    Amazon.com Inc.
    AMZN,
    +7.87%

    overtook Alphabet Inc.
    GOOG,
    +0.58%

    GOOGL,
    +0.86%

    and become the third-largest U.S. public company upon Friday’s close, after its results were well received by Wall Street and Alphabet’s earlier in the week got panned.

    Amazon edged out Alphabet only barely, with a closing market cap of $1.785 trillion compared with $1.777 trillion for Alphabet, according to Dow Jones Market Data.

    Read: Amazon says the ‘magic words.’ They could spur a $110 billion market-cap boost.

    The e-commerce giant hadn’t been valued above the Google parent company since Sept. 30, 2022, according to Dow Jones Market Data. That was also the last time Amazon was the third-largest by market cap.

    Wall Street found plenty to like in Amazon’s latest report, including drastic improvement in operating income, upbeat commentary on the cloud and momentum within the retail business. Meanwhile, Alphabet’s earnings were met with a chillier reception as the company talked up heavy spending plans linked to its artificial-intelligence ambitions.

    The very top of the market-cap ranks has changed up as well lately, though admittedly with less of a tie to earnings. Microsoft Corp.’s
    MSFT,
    +1.84%

    closing valuation surpassed Apple Inc.’s
    AAPL,
    -0.54%

    on Jan. 12 for the first time since November 2021. While the two traded around the top spot in January, Microsoft has been sitting there since Jan. 25.

    Don’t miss: Microsoft earnings may have offered a big bullish clue about cloud growth

    Microsoft also rests alone in the $3 trillion club, with Apple, the only other U.S. company to ever claim membership, having fallen out of it.

    See also: Apple just did something unusual. Can it help the stock amid growth woes?

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  • Alphabet’s stock dips because advertising was good, but not good enough

    Alphabet’s stock dips because advertising was good, but not good enough

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    Google parent Alphabet Inc.’s stock was tumbling late Tuesday, as a rebound in digital advertising fell short of analysts’ lofty expectations.

    The search-engine powerhouse reported a jump in fourth-quarter sales, chiefly through advertising, but Alphabet’s shares
    GOOGL,
    -1.34%

    GOOG,
    -1.16%

    fell 4% in after-hours trading.

    Total revenue was $86.3 billion, up 13% from $76 billion a year ago. Sales minus total acquisition costs (TAC) came in at $72.3 billion, compared with $63.1 billion a year ago.

    Alphabet reported fourth-quarter net income of $20.7 billion, or $1.64 a share, compared with net income of $13.6 billion, or $1.05 a share, in the year-ago quarter.

    “We are pleased with the ongoing strength in Search and the growing contribution from YouTube and Cloud. Each of these is already benefiting from our AI investments and innovation. As we enter the Gemini era, the best is yet to come,” Alphabet Chief Executive Sundar Pichai said in a statement announcing the results.

    Analysts surveyed by FactSet had expected on average net earnings of $1.59 a share on revenue of $85.3 billion and ex-TAC revenue of $71.2 billion.

    Google’s total advertising sales climbed to $65.5 billion from $59 billion a year ago, edging analysts’ average expectations of $65.8 billion. YouTube ad sales rose to $9.2 billion from $7.96 billion a year. Google Cloud rang up $9.2 billion in sales, up from $7.3 billion.

    Alphabet is also ramping up AI initiatives to improve operational efficiency and productivity for 2023 and beyond. The company is using AI in its finance organization and analytics, but Alphabet did not break out AI revenue in Tuesday’s earnings report.

    Alphabet Chief Financial Officer Ruth Porat told CNBC that gen-AI will be a focus of the call with analysts now taking place.

    Shares of Google have climbed 53% over the past 12 months. The S&P 500 index
    SPX
    has risen 21% the past year.

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  • November's rally just erased two months of Fed tightening, economist says

    November's rally just erased two months of Fed tightening, economist says

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    Financial conditions are now looser than in September, says economist

    Financial conditions in the U.S. are looser than in September, says economist.


    Getty Images

    The feel-good tone gripping markets in the home stretch of 2023 may not be what the Federal Reserve had penciled in for the holidays.

    The stock market in December, once again, has been knocking on the door of record levels, driven by optimism about easing inflation and potential Fed rate cuts next year.

    But while the prospect of double-digit equity gains this year would be a reprieve for investors after a brutal 2022, the latest rally also points to looser financial conditions.

    Ultimately, the risk of looser financial conditions is that they could backfire, particularly if they rub against the Fed’s own goal of keeping credit restrictive until inflation has been decisively tamed.

    Read: Inflation is falling but interest rates will be higher for longer. Way longer.

    Specifically, the November rally for the S&P 500 index
    SPX
    can be traced to the 10-year Treasury yield
    BX:TMUBMUSD10Y
    dropping to 4.1% on Thursday from a 16-year peak of 5% in October.

    Falling 10-year Treasury yields from a 5% peak in October coincides with a sharp rally in the S&P 500 at the tail end of 2023.


    Oxford Economics

    The Fed only exerts direct control over short-term rates, but 10-year and 30-year Treasury yields
    BX:TMUBMUSD30Y
    are important because they are a peg for pricing auto loans, corporate debt and mortgages.

    That makes long-term rates matter a lot to investors in stocks, bonds and other assets, since higher rates can lead to rising defaults, but also can crimp corporate earnings, growth and the U.S. economy.

    Michael Pearce, lead U.S. economist at Oxford Economics, thinks the November rally may put Fed officials in a difficult spot ahead of next week’s Dec. 12 to 13 Federal Open Market Committee meeting — the eighth and final policy gathering of 2023.

    “The decline in yields and surge in equity prices more than fully unwinds the tightening in conditions seen since the September FOMC meeting,” Pearce said in a Thursday client note.

    The Fed next week isn’t expected to raise rates, but instead opt to keep its benchmark rate steady at a 22-year high in a 5.25% to 5.5% range, which was set in July. The hope is that higher rates will keep bringing inflation down to the central bank’s 2% annual target.

    Ahead of the Fed’s July meeting, stocks were extending a spring rally into summer, largely driven by shares of six meg-cap technology companies and AI optimism.

    From June: Nvidia officially closes in $1 trillion territory, becoming seventh U.S. company to hit market-cap milestone

    Rates in September were kept unchanged, but central bankers also drove home a “higher for longer” message at that meeting, by penciling in only two rate cuts in 2024, instead of four earlier. That spooked markets and triggered a string of monthly losses in stocks.

    Pearce said he expects the Fed next week to “push back against the idea that rate cuts could come onto the agenda anytime soon,” but also to “err on the side of leaving rates high for too long.”

    That might mean the first rate cut comes in September, he said, later than market odds of a 52.8% chance of the first cut in March, as reflected by Thursday by the CME FedWatch Tool.

    Stocks were higher Thursday, poised to snap a three-session drop. A day earlier, the S&P 500 closed 5.2% off its record high set nearly two years ago, the Dow Jones Industrial Average
    DJIA
    was 2% away from its record close and the Nasdaq Composite Index
    COMP
    was almost 12% below its November 2021 record, according to Dow Jones Market Data.

    Related: What investors can expect in 2024 after a 2-year battle with the bond market

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  • The Nasdaq just fell into a correction. Now what?

    The Nasdaq just fell into a correction. Now what?

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    The Nasdaq Composite Index fell into its 70th correction in history on Wednesday, as surging long-term Treasury yields increased borrowing costs and weighed on stocks.

    The interest rate sensitive Nasdaq
    COMP
    barreled higher in the year’s first half, in part on optimism about a potential Federal Reserve pivot away from rate hikes to fight inflation, but stocks have been under fire in recent months as the Fed dialed up its message that interest rates could will stay higher for longer.

    The tech-heavy equity index fell 2.4% on Wednesday to close below the 12,922.216 threshold, marking a drop of a least 10% from its prior peak, which was set in mid-July at 14,358.02, according to Dow Jones Market Data.

    That met the common definition for a correction in an asset’s value and is the Nasdaq’s 70th close in correction territory since the index’s inception in February 1971.

    Robert Pavlik, senior portfolio manager at Dakota Wealth Management, said the sharp rise in long-term Treasury yields has spooked investors, especially those in highflying, high-growth technology stocks where rising rates can be particularly corrosive.

    Pavlik likened the dynamic to the spending power of a lottery winner hitting a jackpot when rates are at 2% versus someone who wins when rates are closer to 10%.

    He also expects the 10-year Treasury yield
    BX:TMUBMUSD10Y,
    which rose to 4.952% Wednesday, to top out at 5.25% to 5.5% and likely complicate any recovery for the Nasdaq.

    In the past 20 corrections for the Nasdaq, it took an average of three months for performance to improve, with index then gaining 14.4% on average a year later, according to Dow Jones Industrial Average.

    Nasdaq corrections are usually followed by a bounce in a few months


    Dow Jones Market Data

    The damage on Wednesday was most acute in shares of highflying technology stocks, including Alphabet Inc.
    GOOG,
    -9.60%

    as shares skid 9.5%, after it reported earnings that were overshadowed by downbeat performance for its Google Cloud business. Spillover also hit shares of rival cloud computing giant Amazon.com Inc.,
    AMZN,
    -5.58%

    with its shares slumping 5.6%

    “You’re feeling the pressure in some big-name stocks,” Pavlik said. “But this too will, at some point, end. But concerns about the Fed are still in the forefront of everybody’s minds.”

    The Nasdaq was still up 22.5% on the year through Wednesday, while the Dow Jones Industrial Average
    DJIA
    was down 0.3% and the S&P 500 index
    SPX
    was up 9% in 2023, according to FactSet.

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  • Microsoft and Alphabet results show Wall Street only cares about AI

    Microsoft and Alphabet results show Wall Street only cares about AI

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    Microsoft Corp. and Alphabet Inc. both reported mostly strong results Tuesday, but the disparate reactions from investors showed that Wall Street only cares about artificial intelligence right now.

    While Microsoft shares
    MSFT,
    +0.37%

    rose 4% in after-hours trading following the company’s latest report, Alphabet shares
    GOOG,
    +1.61%

    GOOGL,
    +1.69%

    dropped 6% as Wall Street got the sense that AI is manifesting differently in the companies’ cloud businesses.

    Microsoft surprised investors with 28% constant-currency growth in its Azure cloud-computing business, above the company’s own forecast and the projection for 25.6% growth that analysts were modeling on average. While Microsoft continues to see “optimization” challenges as customers remain conscious about their spending, the company is also benefiting from AI tailwinds in the cloud.

    Companies looking to beef up their AI offerings are often looking to add AI services for their customers through additional cloud services, so they don’t have to do as much internal development themselves. In addition, AI offerings ranging from chatbots to tools that can streamline the writing of reports require ever more computing power, and both Azure and Google Cloud are starting to offer new software applications to address those needs.

    Microsoft Chief Executive Satya Nadella called AI a “unique and different” factor that was helping Azure trends. “Given our leadership position, we are seeing complete new project starts, which are AI projects,” he said in response to an analyst question about the sustainability of cloud growth rates.

    In addition, Microsoft, which has invested heavily in ChatGPT-creator OpenAI, offers an Azure OpenAI service that more than 18,000 organizations are now using. Some of these customers are new to Azure.

    Microsoft Chief Financial Officer Amy Hood forecast that Azure revenue growth should be around 26% in constant currency in the fiscal second quarter, driven by new workload trends and with the growing contributions from AI.

    Investors seem less confident that Alphabet is seeing the same tailwinds in its Google Cloud business, especially as that segment showed its slowest quarterly growth since Google began breaking out results that way back in 2019. Cloud revenue of $8.4 billion, with growth of 22%, was $250 million shy of consensus estimates on Wall Street, according to Colin Sebastian, an analyst with Baird. That overshadowed an upbeat performance in the company’s advertising business.

    When one analyst asked Alphabet executives about the deceleration in the revenue growth of its cloud business, Chief Executive Sundar Pichai was vague but said that customers are being selective of where they are spending their IT budgets.

    “On cloud, what I would say is overall, we have definitely started seeing customers looking to optimize spend,” Pichai said. “We leaned into it to help customers, given some other challenges they were facing, and so that was a factor.”

    Alphabet is seeing “a lot of interest in AI,” but it remains to be seen whether that’s contributing materially to its financial performance just yet.

    “Google Cloud missed consensus revenue expectations (although in line with Baird) on slowing growth, and we believe consistent with the view that newer Gen-AI workloads will take time to move the needle,” Sebastian wrote in a note to clients.

    Insider Intelligence senior analyst Max Willens added that Google Cloud is facing tough competition, and while the business seems to have traction with AI startups that “may bear fruit in the long run, it is not currently helping Google Cloud enough to satisfy investors.”

    Wall Street clearly is looking to AI to fuel better growth rates and help offset sluggish macroeconomic trends. The poster child for that dynamic is Nvidia Corp.
    NVDA,
    +1.60%
    ,
    which is expected to single-handedly drive earnings growth for the information technology sector thanks to booming demand for its AI hardware.

    Read: Big-tech results will decide ‘where we go from here’ amid investor caution. They would fall if it weren’t for this one company

    Given economic pressures, it’s becoming obvious that companies without much of an AI story to contribute this quarter will continue to fall out of favor with investors.

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  • Psst: Here’s why Google’s antitrust trial against the Department of Justice isn’t being talked about much

    Psst: Here’s why Google’s antitrust trial against the Department of Justice isn’t being talked about much

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    Google’s top executives have long established a reputation of saying as little as possible on most topics: Earnings calls. Product development plans. Management moves.

    Legal matters are certainly on the list, as the company’s antitrust trial with the Justice Department concludes its third week. The public is barred from listening to the 10-week federal trial, and reporters often encounter a courtroom sealed to the public.

    Secrecy around the nonjury trial belies the magnitude of the case, the biggest of its kind in tech, if not American business, since the DoJ tangled with Microsoft Corp.
    MSFT,
    +0.67%

    in the 1990s and early 2000s. After years of investigation, the Justice Department claims Google used contracts worth billions of dollars with Apple Inc.
    AAPL,
    +0.30%

    and other phone makers to elbow aside competing search engines that could lead to changes in Google’s business practices — even a breakup of the tech giant.

    Google says it makes the best product, and vendors have a choice to work with other search-engine providers. In his opening statement, Google attorney John Schmidtlein said companies and consumers use Google’s popular search engine “because it delivers value to them, not because they have to.”

    Asked by MarketWatch to comment further, a company spokesman declined.

    Read more: Google spent billions to build an illegal monopoly, Justice Department says as trial gets under way

    Alphabet Inc.
    GOOGL,
    -1.10%

    GOOG,
    -0.96%
    ,
    Google’s parent company, has steadfastly redacted information about the contracts at issue in the case, citing confidential company information, and Google’s lawyers — as well as those at Apple — have consistently asked to seal the courtroom. Before opening statements started on Sept. 12, nearly two-thirds of Google’s motions and responses in the case were sealed, according to the New York Times.

    At the same time, criticism has rained on U.S. District Judge Amit Mehta, who has deferred to requests by Google and interested parties like Apple to hold testimony behind closed doors. (On Tuesday, Mehta countered he was relying on federal attorneys to resist persistent attempts by Google and other tech companies to seal the courtroom. He later pushed lawyers to ask more questions in public and wanted to unseal closed-session testimony.)

    “A judge’s job isn’t to simply accept a party’s claim that public access to a trial would cause the sky to fall,” The Freedom of the Press Foundation said in a blog post Wednesday.

    A cone of silence around such a historic case that could lead to changes to Google’s business practices or a breakup of the company is not surprising, given what is at stake.

    “A trial should be open to the public, but there is a balancing act in affording companies some sort of privacy,” lawyer Abiel Garcia said in an interview. Access to documents does disclose how a company thinks. There is a tension here in how Google wants its users to be transparent about their data, but doesn’t tell you what they are doing.”

    Garcia, who presented in a preliminary injunction hearing before Mehta in 2015, said the judge has done an admirable job of respecting Google’s corporate secrets while gradually encouraging more public questioning and disclosures.

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  • Google spent billions to build an illegal monopoly, Justice Department says as trial gets under way

    Google spent billions to build an illegal monopoly, Justice Department says as trial gets under way

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    Federal prosecutors opened a landmark antitrust trial against Alphabet Inc.’s Google on Tuesday with charges the search-engine giant for years intentionally snuffed competition through exclusive contracts with wireless carriers and phone makers.

    Google
    GOOGL,
    -1.15%

    GOOG,
    -1.21%

    spent billions of dollars on such contracts to cement its dominant position, a clear violation of U.S. antitrust law, prosecutors said.

    “This case is about the future of the internet, and whether Google’s search engine will ever face meaningful competition,” Justice Department lawyer Kenneth Dintzer told the court. He said Google pays more than $10 billion a year to Apple Inc.
    AAPL,
    -1.71%

    and other companies to ensure Google is the default or only search engine available on browsers and mobile devices used by millions of consumers.

    Google’s search business accounted for more than half of the $283 billion in revenue Alphabet recorded in 2022. Search in large part has fueled the company’s $1.7 trillion market valuation.

    Google attorney John Schmidtlein countered that companies and consumers use Google’s popular search engine “because it delivers value to them, not because they have to.”

    The legal jousting in a Washington, D.C., federal court kicked off what is expected to be a contentious multiweek trial that could be one of the biggest domestic antitrust trials since the federal government tussled with Microsoft Corp.
    MSFT,
    -1.83%

    in the 1990s. Like that case, this one involves arguments over tying together multiple proprietary products.

    To that end, Justice Department officials allege Google’s contracts ensure that Android devices come with Google apps and services, including Google search, preinstalled.

    Google Chief Executive Sundar Pichai heads a witness list of senior executives and former employees from Google, AppleMicrosoft and Samsung Electronics Co.
    005930,
    +1.28%
    .

    “This feedback loop, this wheel has been turning for 12 years, and it always turns to Google’s advantage,” Dintzer said.

    Conversely, Schmidtlein said Apple’s decision to make Google the default search engine in its Safari browser underscores that Google’s search engine is the product consumers prefer. “Apple repeatedly chose Google as the default because Apple believed it was the best experience for its users,” he said.

    The Google case “could not be more different” from Microsoft litigation in the late 1990s and early 2000s, Schmidtlein asserted. “The evidence will show that Microsoft’s Bing search engine failed to win customers because Microsoft did not invest [and] did not innovate,” he said. “At every critical juncture, the evidence will show that they were beaten in the market.”

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  • Sorry, Elon, a ‘super app’ is never going to fly in the U.S.

    Sorry, Elon, a ‘super app’ is never going to fly in the U.S.

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    “Super apps” have never truly existed in the United States, and it is apparent at this point that they never will.

    That isn’t stopping some executives and investment analysts from still dreaming of becoming one-stop shops for their users’ needs, something only a small handful of apps in Asia have managed to do. The most prominent is Elon Musk, the Tesla Inc. TSLAchief executive who purchased Twitter last year and has proclaimed that he will turn it into an “everything app” called X that resembles super apps in China.

    “I…

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  • Heineken is the latest Western corporate giant to exit Russia

    Heineken is the latest Western corporate giant to exit Russia

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    Beer giant Heineken N.V. is the latest Western company to exit Russia, announcing Friday the sale of its Russian operations to Arnest Group for one euro.

    Under the terms of the deal, all of Heineken’s
    HEIA,
    +0.77%

    remaining assets, including seven breweries in Russia, will transfer to the new owners, the beer giant said in a statement. The Russian Arnest Group has also taken over responsibility for Heineken’s 1,800 employees in Russia.

    Heineken began the process of exiting Russia in March 2022, following that country’s invasion of Ukraine. The company said it expects to incur a total cumulative loss of €300 million ($324.1 million) as a result of its exit.

    “We have now completed our exit from Russia. Recent developments demonstrate the significant challenges faced by large manufacturing companies in exiting Russia,” Heineken CEO Dolf van den Brink said in a statement. “While it took much longer than we had hoped, this transaction secures the livelihoods of our employees and allows us to exit the country in a responsible manner.”

    Related: Unilever CEO vows to look at Russian operations with ‘fresh eyes’ as pressure to exit the country mounts

    A number of major Western corporations, including U.S. giants Apple Inc.
    AAPL,
    +1.26%
    ,
     Alphabet Inc. 
    GOOGL,
    +0.08%

    GOOG,
    +0.21%
    ,
     Amazon.com Inc.
    AMZN,
    +1.08%
    ,
     International Business Machines  Corp. 
    IBM,
    +1.25%

    and McDonald’s Corp. 
    MCD,
    +0.79%
    ,
    have left Russia in response to Moscow’s February 2022 invasion of Ukraine.

    Earlier this week, DP Eurasia, the master franchiser of the Domino’s Pizza Inc.
    DPZ,
    +0.49%

    brand in Turkey, Russia, Azerbaijan and Georgia, also announced its exit from Russia.

    But Heineken is “no hero,” according to Mark Dixon, the founder of the Moral Rating Agency, an organization set up after the invasion of Ukraine to examine whether companies were carrying out their promises of exiting Russia. “It failed to leave Russia for a year and a half,” he told MarketWatch via email. “The explanation that it took longer than expected doesn’t hold water, because of course it’s difficult to find a buyer if you remain so long a pariah state.”

    The Ukraine Solidarity Project said that Heineken’s move should increase the pressure on companies that remain in Russia, such as consumer-goods giant Unilever PLC
    ULVR,
    +0.44%
    .
    “The point here is that major companies, like @Heineken, are and have taken loses of hundreds of millions and billions in leaving the Russian market. It is possible,” the Ukraine Solidarity Project tweeted Friday. “We’re sure @Unilever can do it, too.”

    Related: WeWork, Carl’s Jr., Unilever and Shell among companies slammed by Yale over operations in Russia

    The Ukraine Solidarity Project recently launched a high-profile campaign urging Unilever to get out of Russia, using images of Ukrainian veterans injured in the war with Russia. Last month, activists from the Ukraine Solidarity Project held up a giant poster featuring the veterans outside Unilever’s London headquarters.

    The Moral Rating Agency has also reiterated its calls for Unilever to end its Russian operations. 

    “We have always said we would keep our position in Russia under close review,” a Unilever spokesperson told MarketWatch earlier this month. The spokesperson also directed MarketWatch to a statement on the war in Ukraine that the company released in February 2023.

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  • ‘Magnificent Seven’ stocks are losing some of their shine, but their bonds are doing fine

    ‘Magnificent Seven’ stocks are losing some of their shine, but their bonds are doing fine

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    The so-called Magnificent Seven grouping of technology stocks lost some of its luster this week after four of the seven moved into correction territory, meaning their stocks have fallen at least 10% from their recent peaks.

    The corporate-bond market, in contrast, seems to like all seven names.

    The group is made up of Facebook parent Meta Platforms Inc.
    META,
    -0.65%
    ,
    Apple Inc.
    AAPL,
    +0.28%
    ,
    Microsoft Corp.
    MSFT,
    -0.13%
    ,
    Nvidia Corp.
    NVDA,
    -0.10%
    ,
    Amazon. com Inc.
    AMZN,
    -0.57%
    ,
    Google parent Alphabet Inc.
    GOOGL,
    -1.89%

    GOOG,
    -1.80%

    and Tesla Inc.
    TSLA,
    -1.70%
    .

    One caveat: Tesla has no outstanding bonds. In the past, the electric-car maker issued convertible bonds, but they have all been converted into equity.

    The group is credited with helping drive the stock market’s gains in the first half of the year, driven by excitement about artificial intelligence. But the rally has stalled in recent weeks as investors have fretted over the potential for U.S. interest-rate increases, surging Treasury yields and China worries, with property developer Evergrande filing for U.S. bankruptcy protection late Thursday.

    On Thursday, Meta followed Apple, Microsoft and Nvidia into correction territory, as MarketWatch’s Emily Bary reported. Tesla, meanwhile, is in a bear market, meaning it’s down more than 20% from its recent peak.

    ReadHave AI stocks like Nvidia reached bubble territory? Here’s what history can tell us.

    The following series of charts from data-solutions provider BondCliQ Media Services show how many bonds each company has issued by maturity and how they have traded as the stocks have pulled back.

    The first chart shows that Microsoft has by far the most bonds, mostly in the 30-year bucket. The software and cloud giant has more than $50 billion in long-term debt, according to its 2023 10-K filing with the Securities and Exchange Commission.

    Outstanding Magnificent Seven debt by maturity bucket.


    Source: BondCliQ Media Services

    This chart shows trading volumes over the last 10 days, divided by trade type. The green shows customer buying, while the red is customer selling. The blue shows dealer-to-dealer flows. Microsoft, for example, has seen almost $1.3 billion in customer buying from dealers in the last 10 days and $960 million in customer sales to dealers.

    Magnificent Seven debt trading volumes (last 10 days).


    Source: BondCliQ Media Services

    This chart shows that every name in the group has enjoyed better net buying in the last 10 days, with Microsoft leading the way.

    Net customer flow of Magnificent Seven debt (last 10 days).


    Source: BondCliQ Media Services

    This chart shows spread performance over the last 50 days for an intermediate-term bond from each of the seven issuers. Most have tightened or remained steady over the period.

    Historical spread performance of Magnificent Seven debt.


    Source: BondCliQ Media Services

    Read also: Red flags waving for tech stocks as AI bounce fades, China fears escalate

    Apple’s stock entered correction Wednesday upon falling more than 10% from its July 31 peak of $196.45. The company sells mainly discretionary products, and right now “consumers are still being pinched” and thinking more carefully about where they spend their money, according to Matt Stucky, senior portfolio manager for equities at Northwestern Mutual Wealth Management.

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  • Dow, S&P 500 and Nasdaq post gains as big tech stocks rebound

    Dow, S&P 500 and Nasdaq post gains as big tech stocks rebound

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    U.S. stocks closed higher on Monday, with the Dow flipping positive near the closing bell, as technology stocks bounced back. The Dow Jones Industrial Average DJIA rose about 26 points, or 0.1%, ending near 35,308, according to preliminary FactSet data. The S&P 500 index SPX scored a 0.6% gain and the Nasdaq Composite Index COMP closed up 1.1%, booking its best daily percentage climb since July 28, according to FactSet data. The S&P 500’s information technology sector outperformed with a 1.9% gain, while the communication services segment rose 1%. The rally saw shares of Meta Platforms META, Apple Inc. AAPL, Alphabet…

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  • Regulators open floodgates for driverless taxis in San Francisco, whether they’re wanted or not

    Regulators open floodgates for driverless taxis in San Francisco, whether they’re wanted or not

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    State regulators on Thursday opened the floodgates for more robotaxis on the streets of San Francisco.

    After a contentious, seven-hour meeting, the California Public Utilities Commission — which oversees taxis and autonomous vehicles, among things — approved two resolutions to broadly expand driverless taxi service from Alphabet’s
    GOOG,
    +0.05%

    GOOGL,
    +0.02%

    Waymo and GM’s
    GM,
    -5.79%

    Cruise.

    On a pair of 3-1 votes, regulators approved allowing Waymo and Cruise to offer fared driverless rides across San Francisco, at all hours of the day, with an unlimited number of vehicles.

    While the driverless vehicles are already ubiquitous on city streets, San Francisco is now set to become the first U.S. city with two fleets of robotaxis that will be able to fully compete with taxis and ride-hailing services.

    “Today’s permit marks the true beginning of our commercial operations in San Francisco,” Tekedra Mawakana, co-CEO of Waymo, said in a blog post.  “We’re incredibly grateful for this vote of confidence from the CPUC, and to the communities and riders who have supported our service.” 

    Waymo said it expects “incredibly high demand,” and will be expanding its robotaxi service incrementally.

    Cruise CEO Kyle Vogt said he was “thrilled” by the votes. “It’s a huge milestone for the AV industry, but even more importantly a signal to the country that CA prioritizes progress over our tragic status quo,” he tweeted.

    The expansion was opposed by San Francisco city officials, who say autonomous-driving technology is not ready for prime time, and that the companies need to be more transparent in how they operate. On Wednesday, the city’s fire department released details of 55 incidents so far this year where driverless cars interfered in emergency scenes.

    Read more: Driverless cars are driving San Francisco crazy — ‘They are not ready for prime time’

    That’s just the tip of the iceberg: Jeffrey Tumlin, the head of San Francisco’s transportation agency, told MarketWatch in July that the city was seeing “up to 90 incidents per month … of varying degrees, some are minor, some are major obstructions.” Those included instances of autonomous cars stopping in the middle of traffic, crashes and other driving hazards.

    While acknowledging the positives of driverless technology — which its advocates say is much safer than human drivers — Tumlin said the city would like a more gradual expansion of autonomous cars, with limitations, like the next level of a “learner’s permit.”

    Regulation of autonomous vehicles, however, is up to the state.

    The PUC meeting had been delayed twice, and Thursday’s meeting featured public comment from more than 150 people voicing their opinions on both sides of the issue.

    PUC Commissioner Genevieve Shiroma was the sole dissenter on Thursday’s votes, which were absent one member. She told the hearing that there was no rush to make a decision, and advocated delaying the vote again. She noted that Cruise and Waymo claim to have maintained a good safety record, but that there were discrepancies about the data submitted to regulators. “Passengers should not be endangered, first responders should not be prevented from doing their jobs,” she said.

    Alice Reynolds, the president of the CPUC, argued that this was an incremental approval, echoing comments by Commissioner John Reynolds, a former managing counsel at Cruise who did not recuse himself from voting, that the California DMV has already given the companies a permit to operate.

    “We do expect the autonomous-vehicle companies to engage with first responders,” Reynolds said. “In the meantime the resolutions before us to meet our requirements.”

    Teamsters vice president Peter Finn blasted the decision, saying it was “irresponsible and shows a complete disregard for public safety.”

    “Public safety decisions should not be made by regulatory bodies that are in the pocket of Big Tech,” Finn said in a statement, adding that the Teamsters support pending state legislation that would require a trained human operator in autonomous vehicles weighing over 10,000 pounds, which would include most trucks.

    A number of companies have autonomous cars driving on San Francisco streets, but only Cruise and Waymo had been approved for taxi service, with limitations. Earlier this week, the two companies disclosed how many driverless vehicles they operate in San Francisco: Cruise runs 100 vehicles during the day and 300 at night, while Waymo has 250 robotaxis operating.

    That number could soon grow significantly.

    Cruise’s Vogt said in an earnings call last month that Cruise could add “several thousand” robotaxis to San Francisco in an effort to create a disruptive service resembling Uber.

    Therese Poletti contributed to this report.

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  • The ‘narrow breadth’ chorus has fallen silent. What broadening participation in stock-market rally means for investors.

    The ‘narrow breadth’ chorus has fallen silent. What broadening participation in stock-market rally means for investors.

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    A wider swath of stocks have joined the S&P 500
    SPX,
    +0.15%
    ’s
    upswing after the so-called Magnificent Seven — Apple
    AAPL,
    +0.32%
    ,
    Amazon
    AMZN,
    +1.11%
    ,
    Alphabet
    GOOG,
    +0.08%
    ,
    Microsoft
    MSFT,
    -0.72%
    ,
    Meta
    META,
    -2.11%
    ,
    Nvidia
    NVDA,
    -0.04%

    and Tesla
    TSLA,
    +0.37%

    — single-handedly propelled the large-cap index into a bull market in early June, with the gauge now up more than 28% from its low notched last October and rising to new highs since April 2022, according to Dow Jones Market Data. 

    Hopes that the U.S. economy could pull off a soft landing and avoid a recession despite the Federal Reserve’s aggressive interest-rate hikes, as well as receding inflation pressures and expectations for the end of the Fed’s monetary tightening campaign, have underpinned a notable expansion in market breadth over the past two months, according Adam Turnquist, chief technical strategist at LPL Financial. 

    The S&P 500 Equal Weighted Index
    SP500EW,
    +0.27%
    ,
    which lagged behind the market-cap-weighted S&P 500 index for most of the year, has now kicked back into gear and staged an impressive comeback in July. The equal-weighted index and the S&P 500 each advanced 3.1% this month, according to FactSet data. 

    The equal weighting eliminates the distortion of the megacap components and significantly changes several sector weightings in the S&P 500, including technology, which drops from around 29% on the SPX to only 13% on the equal-weighted index, said Turnquist in a Friday note. Meanwhile, the industrials sector has the biggest increase in weight, jumping from 9% on the SPX to 16% on the equal-weighted index.

    Another way to quantify and compare market breadth is to look at the percentage of stocks on an index trading above their longer-term 200-day moving average (dma), Turnquist said. In general, if a stock is trading above its 200 dma, it is considered to be in an uptrend, and if the price is below the 200 dma, it is considered in a downtrend. Furthermore, a higher percentage of stocks above their 200 dma implies buying pressure is more widespread — suggesting the market’s advance is likely sustainable.

    The chart below shows that 73% of stocks within the S&P 500 are trading above their 200 dma as of July 27, which compares to only 48% at the end of 2022. Moreover, the composition of breadth leadership has turned increasingly bullish. The highest sector readings include technology, industrials, energy, and consumer discretionary.

    “So not only is breadth on the index robust, but cyclical stocks are also leading,” said Turnquist. 

    SOURCE: LPL RESEARCH, BLOOMBERG

    Wall Street often views broadening participation in the stock-market rally as a measure of health and a constructive sign of the sustainability of the bull market. 

    Jimmy Lee, founder and chief executive officer of The Wealth Consulting Group said he is seeing “a lot of money” flowing into areas that are not the Magnificent Seven such as stocks in the industrials, financials, materials, energy and even real-estate sectors.

    The S&P 500’s industrials sector
    SP500.20,
    +0.23%

    climbed 2.9% in July, while the financials sector
    SP500.40,
    +0.44%

    advanced over 4.7% this month. The S&P 500’s energy sector
    SP500.10,
    +2.00%
    ,
    which had been the biggest laggard when the rest of the markets exited the bear market in June, jumped 7.3% month to date after the U.S. oil benchmark
    CL.1,
    -0.20%

    CL00,
    -0.20%

    closed above $80 a barrel for the first time since April. 

    Meanwhile, the tech-heavy S&P 500’s communication-services sector
    SP500.50,
    -0.03%

    rose 6.7% in July, while the consumer-discretionary sector
    SP500.25,
    +0.56%

    gained 2.4% and the information-technology sector
    SP500.45,
    +0.13%

    was up 2.6%, according to FactSet data. 

    See: Stocks are on a seemingly unstoppable hot streak, but this bond-market ‘tipping point’ could see it end in a hurry

    Stephen Hoedt, managing director of equity and fixed income research at Key Private Bank, told MarketWatch in an interview that he doesn’t see “any reason to get bearish here with the fundamentals that are underlying,” which gives investors reason to rotate toward the more cyclical areas such as energy, financials and industrials, while broadening the market away from just being concentrated in the megacap technology names. 

    “The growth has been a surprise this year for everyone, so that’s what the market got wrong coming into this year. When I look at growth, nominal GDP growth translates directly into earnings and we’ve seen earnings continue to surprise on the upside,” Hoedt said. 

    Hoedt pointed to the direction of the 12-month forward earnings estimate for the S&P 500 as an important indicator. “As long as the direction of the 12-month forward earnings number for the S&P 500 is going up, it’s really, really difficult to be bearish on the stock market,” he said. “It seems to me that we may start to see another inflection higher in forward earnings revisions that take into account this stronger growth environment that we’re in.” 

    However, the broadening of the stock-market rally and the bullish sentiment were also driving some on Wall Street to believe stocks are overbought and due for a correction. 

    Lee said there’s still too much pessimism out there and too much concern that some investors haven’t chased the market yet. “In the second half of this year, when the Fed does stop raising rates and if the economy stays out of recession, you can see major money — trillions of dollars moving from the money market into equities and other risk assets,” he told MarketWatch in a phone interview on Friday.

    “When that happens, it’s probably going to push valuations even further. So I would imagine when that happens is when you can expect more of a correction to occur, but I think that we still have more room to go before that happens.” 

    U.S. stocks ended higher on Monday, finishing up July on a positive note. Three major stock indexes rallied this month, with the S&P 500 up 3.1% and booking its fifth monthly gain. The tech-heavy Nasdaq Composite
    COMP,
    +0.21%

    gained 4.1% month to date, while the Dow Jones Industrial Average
    DJIA,
    +0.28%

    advanced 3.4%, according to Dow Jones Market Data. 

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  • Digital advertising is Meta and Google’s world, and everyone else is coping with it

    Digital advertising is Meta and Google’s world, and everyone else is coping with it

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    There are two certainties in the tech world when it comes to digital advertising: Google and Meta. And then there’s everyone else.

    Through economic thick and thin, Google and Meta are the gold standards by virtue of broad reach (billions of people globally), product dominance (in search and social media, respectively) and in their positions in the lightning-fast AI race. This week’s earnings results for Alphabet Inc.
    GOOGL,
    +2.46%

    GOOG,
    +2.42%

    and Meta Platforms Inc.
    META,
    +4.42%

    proved that emphatically once again.

    Both companies rebounded from recent wobbly digital ads sales of their own through gigantic consumer reach and aggressive plans to parlay AI into ad sales. Google has developed (or dabbled) in some form of AI for at least seven years, and in a conference call with analysts Wednesday, Meta Chief Executive Mark Zuckerberg said his company will focus in the near term on AI to develop agents, ad features in existing products like Instagram and Reels, and internal productivity and efficiency. “We want to scale them, but they are hard to forecast,” he admitted.

    Read more: Meta’s stock jumps after AI, ad momentum drive earnings and revenue higher

    And: Alphabet earnings push stock up 6%, fueled by strong ad sales and strides in AI

    Conversely, for companies consigned to the also-ran category, such as Snap Inc.
    SNAP,
    +3.39%

    and X — the former Twitter — the news was bleak. Snap forecast disappointing third-quarter sales amid a spending push to draw advertisers.

    “We continue to believe it will take multiple quarters of improved execution for many investors to get more comfortable with the story longer term,” JP Morgan analysts said in a note on Snap earlier this month.

    Digital-advertising leader Google sought to remind everyone it has been doing AI a long time while Microsoft Corp.
    MSFT,
    +2.31%
    ,
    a major investor in ChatGPT pioneer OpenAI, tempered its approach, Josh Wetzel, chief revenue officer at OneSignal, said in an interview. “AI’s greatest immediate value may be for Facebook advertising,” he said, pointing to it as an efficient and effective tool after Facebook encountered issues with data-privacy changes Apple Inc.
    AAPL,
    +1.35%

    made to mobile devices.

    Read more: Alphabet earnings remind Wall Street of Google’s AI prowess

    “Meta’s solid quarter adds further evidence to the view that advertisers are choosing to spend their budget on the so-called market leaders, such as Facebook and Instagram, at the expense of the smaller social-media networks, like Snap,” said Jesse Cohen, senior analyst at Investing.com.

    Jon Oberlander, executive vice president of social at digital-marketing agency Tinuiti, added: “It is, to some extent, still Meta/Google’s game, especially for performance advertisers, as the ROI and scale advertisers can find in the mid-lower funnel gap above other platforms.”

    At the same time, Forrester analyst Kelsey Chickering said linear television ad revenue will slow between now and 2027 to about $65 billion from $70 billion as traditional TV continues to lose the under-25 crowd that has fled to streaming services and creator-heavy platforms like Snapchat and TikTok.

    Digital advertising is on track to grow in the high single digits, or more, in 2023, slightly ahead of June’s forecast estimates from GroupM and Magna of around 8% each, according to Brian Wieser, head of Madison and Wall, a media and advertising consultancy for investors.

    Most of that growth will benefit Google, Meta, and Microsoft’s LinkedIn, according to data from Emburse. Conversely, Emburse found ad spending on Twitter/X has plunged 54% from a year ago in May, before Elon Musk bought the company.

    “Google, Meta and LinkedIn are platforms where people go to consume information, search for ideas, or give context to what they experiencing in their personal or work lives,” Emburse Chief Experience Officer Johann Wrede said.

    While Alphabet CEO Sundar Pichai boasted Wednesday of “continued leadership in AI and our excellence in engineering and innovation are driving the next evolution of Search” and other services, as well as improved YouTube ad sales, Meta’s addition of potential X-killer Threads could dramatically inflate its ad sales going forward.

    Zuckerberg sees potential in Threads long term despite a plunge in its user sign-ups because X is hemorrhaging advertising clients, and this week reportedly slashed ad costs to lure business customers.

    “The launch of Threads holds great promise for Meta. While there are currently no ads on the app, it’s inevitable that they will come and the ability to use data from other Meta properties for targeting is a highly lucrative proposition for brands,” Aaron Goldman, chief marketing officer at Mediaocean, said in an email.

    That translates to more near-term pain for smaller platforms such as Snap and X, which are posting negative growth, Michael Nathanson of SVB MoffettNathanson warned in a note Wednesday.

    “The truth is that Alphabet started integrating machine learning and artificial intelligence into their products and ad solutions close to a decade ago,” he said. Snap and others are scrambling to catch up.

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  • Alphabet earnings push stock up 6%; CFO Ruth Porat to become president, chief investment officer

    Alphabet earnings push stock up 6%; CFO Ruth Porat to become president, chief investment officer

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    Google parent Alphabet Inc.’s stock jumped 6% in after-hours trading Tuesday after the company beat estimates on the top and bottom line, and announced the transition of Chief Financial Officer Ruth Porat to president and chief investment officer in September.

    Fueled by strong advertising sales, Alphabet
    GOOGL,
    +0.56%

     
    GOOG,
    +0.75%

    racked up fiscal second-quarter net income of $18.4 billion, or $1.44 a share, compared with net income of $16 billion, or $1.21 a share, in the same quarter a year ago.

    Total revenue was $74.6 billion, compared with $69.7 billion a year ago. Sales minus traffic-acquisition costs were $62.06 billion, vs. $57.5 billion last year.

    Analysts surveyed by FactSet had expected on average net earnings of $1.34 a share on revenue of $72.85 billion and ex-TAC revenue of $60.25 billion.

    “There’s exciting momentum across our products and the company, which drove strong results this quarter,” Alphabet Chief Executive Sundar Pichai said in a statement. “Our continued leadership in AI and our excellence in engineering
    and innovation are driving the next evolution of Search, and improving all our services.”

    During a conference call Tuesday afternoon, he highlighted the intertwining of advertising and Alphabet’s strides in generative AI. He added the company continues to consolidate and align operations to streamline spending.

    Shares of Alphabet have advanced 39% so far this year largely on the strength of generative AI and its potential. The broader S&P 500 index 
    SPX,
    +0.28%

    is up 19%. Alphabet’s stock inched up 0.6% to $122.21 in the regular session Tuesday.

    Google’s total advertising sales improved to $58.14 billion from $56.3 billion a year ago, and edged analysts’ average expectations of $57.45 billion. Google Cloud hauled in $8 billion, compared with $6.3 billion last year. YouTube ad sales rebounded to $7.7 billion from $7.34 billion a year ago.

    “The proverbial floodgates aren’t opening yet but clients are starting to see pockets of opportunity and are willing to invest for a direct return,” Aaron Levy, vice president of paid search at Tinuiti, said in an email.

    Porat, who has played an essential role in Google’s advertising success since she became CFO in 2015, will start her new role on Sept. 1. She will be responsible for Alphabet’s investments in its Other Bets portfolio, and the company’s investments in countries and communities around the world. Porat will continue to report to Pichai.

    “We see technology can make so much of a difference in people’s lives… and in economic growth globally,” Porat said during the conference call late Tuesday.

    The monetization of AI continues to be an obsession of investors and Wall Street. Microsoft Corp.’s
    MSFT,
    +1.70%

    AI version, Bing, hit the market first, but Google’s competing entry, Bard, is making headway, according to analysts. Alphabet is ramping up AI initiatives to improve operational efficiency and productivity.

    When asked on the call about AI monetization, Pichai said the technology expands the company’s total addressable market, brings in potential new customers, deepens the versatility of its product portfolio, and differentiates core products such as cybersecurity.

    AI’s importance was underscored by a Wall Street Journal report on Tuesday that Google co-founder Sergey Brin has been spotted at the company’s Mountain View, Calif., headquarters in recent weeks working with AI researchers on a large-scale project. Brin has been largely out of sight after stepping down from an executive role at parent company Alphabet in 2019.

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  • Dow posts longest winning streak in nearly 6 years; Nasdaq slumps over 2%

    Dow posts longest winning streak in nearly 6 years; Nasdaq slumps over 2%

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    U.S. stocks finished mostly lower Thursday, with the Nasdaq and S&P 500 dragged down by disappointing earnings, while the Dow Jones Industrial Average rose for a ninth straight day for its longest winning streak in nearly six years.

    How stocks traded

    • The S&P 500
      SPX,
      -0.68%

      fell 30.85 points, or 0.7%, to close at 4,534.87.

    • The Dow
      DJIA,
      +0.47%

      rose 163.97 points, or 0.5%, to finish at 35,225.18. The winning streak is its longest since a nine-day run that ended on Sept. 20, 2017, according to Dow Jones Market Data.

    • The Nasdaq Composite
      COMP,
      -2.05%

      ended at 14,063.31, down 294.71 points, or 2.1%.

    What drove markets

    After lagging behind the S&P 500 and Nasdaq for most of the year, the Dow Jones Industrial Average has climbed over the past two weeks. The blue-chip gauge is now heading for its longest streak of daily gains since Sept. 20, 2017, according to Dow Jones Market Data.

    It’s the latest milestone as value stocks and other lagging sectors of the market appear to be playing “catch up,” said Paul Nolte, senior wealth adviser and market strategist at Murphy & Sylvest Wealth Management, during a phone interview with MarketWatch. Although the Dow’s year-to-date gains are still well behind those of the S&P 500, with the blue-chip gauge up 6.6% since Jan. 1, FactSet data show.

    On Wednesday, the S&P 500 and Nasdaq closed at their highest levels in nearly 16 months.

    “We’re finally seeing the rotation to value,” he said. “The Dow is playing catch up with the S&P 500 and the Nasdaq.”

    See: Stock-market bubble trouble? Check out the 3-year view on Nasdaq, S&P 500 returns.

    Technology stocks were lagging following earnings from Netflix Inc.
    NFLX,
    -8.41%

    released late Wednesday, which showed that revenue fell short. Shares fell 8.4%.

    Tesla Inc.
    TSLA,
    -9.74%

    shares fell 9.7% after the electric vehicle maker beat Wall Street expectations for its second quarter but not in the blowout fashion that some market observers were expecting.

    “Netflix missed sales estimates and issued lower-than-expected Q3 guidance, while Tesla’s results showed shrinking profitability with squeeze on margins,” said Henry Allen, strategist at Deutsche Bank.

    Semiconductor shares also took it on the chin, with the PHLX Semiconductor Index
    SOX,
    -3.62%

    falling 3.6%. The drop came after Taiwan Semiconductor Manufacturing Co. 
    TSM,
    -5.05%

    topped second-quarter earnings expectations but reported margins that contracted, while providing a somewhat downbeat outlook.

    Meanwhile, shares of IBM Corp.
    IBM,
    +2.14%

    and Johnson & Johnson
    JNJ,
    +6.07%

    drove the Dow higher after both companies beat earnings expectations.

    Bad news for Netflix seemed to infect other megacap technology names, as Alphabet Inc. Class A
    GOOGL,
    -2.32%

    and Alphabet Inc.
    GOOG,
    -2.65%

    retreated, as did shares of Apple Inc.
    AAPL,
    -1.01%

    and Microsoft Corp.
    MSFT,
    -2.31%

    after the latter hit a record this week.

    Investors also digested earnings from American Airlines Group Inc.
    AAL,
    -6.24%

    and Blackstone Inc.
    BX,
    -0.61%

    which reported before the opening bell. After the close, investors will hear from Capital One Financial Corp.
    COF,
    -2.52%
    ,
    CSX Corp.
    CSX,
    -0.27%

    and First Financial Bancorp
    FFBC,
    -0.54%
    ,
    along with a few others.

    In U.S. economic data, weekly jobless benefit claims data showed the number of Americans applying for first-time unemployment benefits fell to a two-month low. Meanwhile, the Philadelphia Fed’s gauge of manufacturing activity came in at negative 13.5 in July, up from 13.7 during the prior month.

    Existing home sales fell in June, while leading index of economic indicators dropped 0.7% in June, falling for the 15th month in a row.

    Companies in focus

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  • Nasdaq is making a big change to its most popular index. Here’s how it might impact your portfolio.

    Nasdaq is making a big change to its most popular index. Here’s how it might impact your portfolio.

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    Big Tech has gotten too big for Nasdaq’s liking.

    So the exchange has decided to make some changes to the Nasdaq 100 index, its most popular index, according to company representatives, ostensibly to diminish the concentration risk that accompanies having an index that derives more than half of its value from just seven companies.

    Nasdaq announced late last week that the Nasdaq 100
    NDX,
    +1.24%

    will undergo a special rebalancing that will take effect prior to the market open on July 24. It’s only the third time that Nasdaq has announced such an impromptu rejiggering of how much individual stocks contribute to the index. Although Nasdaq can also reconstitute the index regularly every December, and there’s also a mechanism to rebalance every quarter as well.

    In a statement announcing the move, the exchange alluded to the fact that the largest companies in the technology sector have too much sway over the index’s price. Nasdaq said special rebalancing can be implemented “to address overconcentration in the index by redistributing the weights.”

    The rebalancing comes at a critical time. The Nasdaq 100 has risen 40% since the start of 2023, largely thanks to the “Magnificent Seven,” a handful of megacap technology names that have powered much of the U.S. stock market’s rally this year.

    These gains have pushed the index to its highest level since mid-January 2022, meaning that Big Tech has now retraced nearly all of last year’s losses, and might soon be headed for the all-time highs from November 2021.

    As of Thursday, the Magnificent Seven stocks — Nvidia Corp.
    NVDA,
    +3.53%
    ,
    Apple Inc.
    AAPL,
    +0.90%
    ,
    Microsoft Corp.
    MSFT,
    +1.42%
    ,
    Amazon.com Inc.
    AMZN,
    +1.57%
    ,
    Tesla Inc.
    TSLA,
    +0.82%
    ,
    Meta Platforms Inc.
    META,
    +3.70%

    and Alphabet Inc.’s Class A
    GOOGL,
    +1.53%

    and Class C
    GOOG,
    +1.62%

    shares — accounted for 55% of the Nasdaq 100’s market capitalization, while the top five names account for more than 45%.

    According to Nasdaq’s official methodology, the goal is to keep the aggregate weighting of the biggest stocks below 40%. In fact, it’s possible that Tesla Inc. surpassing 4.5% of the index earlier this month triggered the Nasdaq’s rebalancing announcement, according to analysts from UBS Group AG
    UBS,
    +1.87%
    .

    Exactly how it plans to accomplish this isn’t yet known. Nasdaq said the new weighting scheme will be unveiled on Friday, likely after the U.S. market close. But the UBS team has an educated guess.

    “The quarterly reviews would dictate that the aggregate weight to securities exceeding 4.5% be set to 40%. If that’s the approach Nasdaq takes, then we’d expect the weights of Microsoft, Apple, Nvidia, Alphabet, Amazon, and Tesla to be reduced,” the team said in a note shared with MarketWatch.

    For investors trying to anticipate how this might impact their portfolios, here the answers to a few key questions.

    Could the rebalancing kill the U.S. stock market rally?

    Not likely. Or rather: if the rally in Big Tech does falter, history suggests it won’t be because of the rebalancing.

    Here’s more on that from Nicholas Colas, co-founder of DataTrek Research, who discussed the topic in commentary emailed to MarketWatch on Wednesday.

    “…[T]here is the natural inclination to think that the upcoming special reweighting is a sign that large cap disruptive tech is set to roll over because a handful of names have so handily outpaced the rest of its notional peers,” Colas said.

    “History suggests otherwise. The last 2 one-off reweights were in 2011 and 1998. Neither proved to be the end of a Nasdaq 100/tech stock bull market. Not even close, really.”

    More immediately, ETF experts expect trading around the rebalancing will be relatively muted.

    “While it sounds scary, Investors are well positioned — this has been well bantered about,” said David Lutz, head of ETF Trading at Jones Trading, in comments emailed to MarketWatch.

    How could this benefit investors?

    Since megacap technology stocks don’t pay much, if anything, in dividends, the rebalancing could increase the amount of dividends that ETF investors receive each year, according to a team of analysts at JPMorgan Chase & Co.

    Since the largest constituents pay a dividend yield well below the index average, the redistribution of weight from them to the rest of the index will result in a “meaningful boost” to the regular payouts received by investors, which will boost the total return of Nasdaq 100-tracking ETFs and mutual funds.

    Will there be any short-term costs associated with the rebalancing?

    There might be. Since the new index weightings will be announced in advance, investors will have plenty of time to front-run the rebalancing trade.

    Still, there are plenty of hedge funds and proprietary trading firms that run strategies explicitly designed to profit from rebalancing. These firms profits have to come from somewhere, and the logical place would be the fund managers of the Invesco QQQ exchange-traded fund
    QQQ,
    +1.26%

    QQQM,
    +1.27%
    .

    “There are prop traders and hedge funds that run the strategy of providing liquidity to indexes with the expectation that they’ll earn profits,” said Roni Israelov, president and CIO at Wealth Manager NDVR, during a phone interview with MarketWatch.

    “if they are earning profits by providing that liquidity, the expectation is those profits are being paid by investors in those funds.”

    So far at least, markets appear to have taken news of the rebalancing in stride. Megacap technology names tumbled earlier this week, but they’ve since recouped those losses and then some.

    The Nasdaq Composite
    COMP,
    +1.15%
    ,
    another Nasdaq index that isn’t quite as heavily weighted toward Big Tech, rose 1.2% to 13,918.96.

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  • Driverless cars are driving San Francisco crazy — ‘They are not ready for prime time’

    Driverless cars are driving San Francisco crazy — ‘They are not ready for prime time’

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    A street was blocked for road work in my San Francisco neighborhood this month, with a worker holding a large STOP sign to direct traffic.

    A white car did as instructed, stopping in the middle of the intersection and blocking traffic at the four way intersection. No one was in the driver’s seat and there were no passengers, nor any training drivers — it was a Cruise driverless car, one of many that have flooded streets in the city in the last two years.

    The public works employee holding the sign was flummoxed as how to get the car to move away. After several minutes, the car slowly backed its way out and crossed the street, but ended up on the wrong side. After another 10 minutes, it managed to pull itself together, get in the right lane and drive down the hill.

    Most San Francisco residents can tell a similar story. The growing driverless car fleets in San Francisco are both a fascinating glimpse of science fiction come to life and a scary example of how Big Tech and auto companies have run roughshod over a congested city, with technology that really isn’t ready yet and little regulation to keep it at bay.

    Now, the problem is coming to a head. San Francisco public officials have had enough, and are speaking out about safety threats ahead of a hearing next month that could let companies expand into larger fleets of fare-generating robotaxis.

    “They are not ready for prime time,” San Francisco Fire Chief Jeanine Nicholson told MarketWatch in an interview.

    “They have run over our hoses, they have blocked our fire engines from going on calls, they have just blocked our vehicles from getting down streets where there is a possible fire. They have just done a multitude of things. We had to break the window of one once because we could not get its attention,” Nicholson said.

    While the average citizen can laugh at the stalled cars in city streets, the vehicles represent a major impediment for first responders. The San Francisco fire chief believes they put the city’s firefighters and residents at risk.

    “Response time matters — a fire can double in size in a minute,” she said.

    Aaron Peskin, president of the city’s Board of Supervisors, said there have been 66 incidents in which driverless cars interfered with first responders this year. But the city has little control over the cars operated by Cruise, a unit of General Motors Co.
    GM,
    +1.04%
    ,
    and Waymo LLC, a subsidiary of Google parent Alphabet Inc.
    GOOG,
    -0.34%

    GOOGL,
    +0.17%

    Both companies already have Department of Motor Vehicle permits to deploy a driverless passenger taxi service, a process Peskin described as “Kafka-esque.”

    “You have this thing where the DMV colluded with the industry to redact information that otherwise was public,” he said, referring to the result of a lawsuit Waymo filed last year against the DMV to keep its crash data private, arguing that it held trade secrets. “The funny thing is it’s not like San Francisco is trying to say ‘let’s put the genie back in the bottle.’ We are trying to ensure that our streets are safe. They have become too congested.”

    Both companies are seeking to expand their operations into fare-generating robotaxis in San Francisco, leading to a crucial meeting of California’s Public Utility Commission now slated for July. Waymo is seeking to begin passenger robo-taxi service in the city, while Cruise is seeking to expand its passenger robo-taxi service to the entire city, 24 hours a day, and remove exclusions of steep hills and roundabouts, deploying 100 vehicles. Helpfully for the companies, one PUC commissioner appointed by Gov. Gavin Newsom in 2021 is John Reynolds, who was managing counsel of Cruise until 2019.

    Resistance is building locally and nationally. Cathy Chase, president of Advocates for Highway and Auto Safety, a nonprofit in Washington seeking more regulation and data transparency on autonomous vehicles as part of its mission for more highway and road safety, said it was “illogical and irresponsible at best, and dangerous and deadly at worst, to go forward with any expansion until the significant problems have been resolved.”

    The San Francisco Municipal Transportation Authority (SFMTA) wrote letters of protest to both company’s applications. In May, the SFMTA said that since it wrote its first letter in January, “new hazards from driverless AV operations in San Francisco have been reported, and general public complaints about driverless AV operations have increased significantly.”

    In May, a Waymo vehicle hit and killed a small dog that was off leash, while a test driver was at the wheel, in what the company said was an unavoidable accident. In June, a Cruise vehicle with no driver started to enter a mass shooting scene in the Mission District, and a video on Twitter showed a police officer yelling to get the car removed. Cruise said a lane was open for emergency vehicles and that its car did a U-turn and pulled over. In April, five Waymo cars stopped and blocked traffic in the Balboa Terrace area, in dense fog, a big problem for the vision systems.

    The letters note that both Waymo and Cruise have “committed numerous violations that would preclude any teenager from getting a California’s Driver’s License.” The SFMTA also calls out the PUC for relying on the DMV for approvals, saying that its draft resolution to approve expansions of both companies is an attempt to “deflect rather than exercise the Commission’s duty to protect public safety.”

    Waymo said it has been working with public safety officials and provides them a phone number to reach Waymo directly in the event that one of its cars stop. Cruise said it is proud of its safety record “which is publicly reported and includes millions of miles driven in an extremely complex urban environment.” Both companies have over 30 letters of support for their plans, from a range of groups including many representing the disabled, such as the National Federation of the Blind of California.

    “It’s because of the donations,” Peskin said.

    But the city’s fire chief Nicholson said there needs to be more from the companies than PR statements and lessons on how to stop their vehicles.

    “They really need to sit down with us and figure out a solution,” she said, adding that when the fire department is in the middle of putting out a fire or rescuing victims or dealing with a health emergency, “to have to handle one of their vehicles, it’s just ridiculous.”

    As is the case with many new technologies, history does tend to repeat itself.

    Chris Gerdes, a professor of mechanical engineering at Stanford University and co-director of the Center for Automotive Research at Stanford (CARS) said that as part of work he has been doing with Ford Motor Co.
    F,
    +0.73%
    ,
    he has been researching ethical and legal issues associated with automated vehicles. These same issues came up when the first automobiles started to arrive on public streets at the turn of the 20th century, clashing with horses and buggies.

    “You go back and look at the debates when the car came out,” Gerdes said, and “there were a lot of debates around should these things be allowed on the road, should they be allowed everywhere? These questions that are coming now were asked about cars back in the day. They can block the road, they can scare horses. Is this something we want to have on the roads? Is it even legal for them to be on the roads?”

    But there is a need to demonstrate that driverless cars are compatible with existing laws and the uses of the roads, he said. “The question becomes at what point do these isolated incidents add to up to danger, to what extent do these compromise the city’s priorities or mobility and traffic flow.” He said they need to compare the autonomous-vehicle data with that from human drivers.

    The SFMTA provided comparison data in its letters of protest. According to the SFMTA, based on data filed with the NHTSA, Cruise’s injury crash rate is estimated to have been 506 injury crashes per 100 million vehicle miles traveled (VMT) between June and November, 2022—approximately 6.3 times the 2021 national average, which is 80 injury crashes per 100 million VMT. Waymo’s injury crash rate is estimated to be 104 injuries per 100 million VMT, approximately 1.3 times the national average, the SFMTA said, when looking at the same period.

    “The collision rate from that small fraction of Cruise driverless operations appears to exceed the collision rate for human drivers,” the SFMTA said in its Cruise letter. For Waymo, the agency said it recommends the commission expand on the findings with a more thorough analysis. “Within the complex driving environment of San Francisco city streets, we must conclude that the technology is still under development and has not reached this goal,” the SFMTA said in its Waymo letter.

    Some in San Francisco are hopeful the delay of the PUC meeting to July 13 is a good sign that the commission is listening to more input from city officials. In its letters, the SFMTA and the San Francisco City Attorney hint at the next step they could take, noting that the PUC “must conduct an environmental review” of Cruise’s and Waymo’s expansion plans, because its actions could cause environmental impacts. What goes unsaid is that the city could seek to compel such a review with a lawsuit.

    Peskin said he has received letters from former employees of the companies saying that autonomous robotaxis are, as the fire chief said, “not ready for prime time.” The workers said they had signed nondisclosure agreements that kept them from saying so publicly. Peskin suggested it could end up like the tobacco industry’s whistleblower case.

    “We would rather work with them than waste taxpayers’ money on lawsuits,” Peskin said, adding that the companies could continue to test their cars with test drivers — an option that is not likely to be acceptable by the companies seeking to make money from their big investment.

    “San Francisco is the perfect place to test them,” he said. “But they still haven’t worked these kinks out.”

    The city of San Francisco is beaten down at the moment, thanks in part to its past close relationship with tech. As the downtown core suffers from the departure of the tech workers that defined it for the past decade, city officials are doing what they can to ensure that the technology some of them created does not become the next hated addition to the city.

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  • How a hawkish Fed could kill a baby bull-market rally in U.S. stocks

    How a hawkish Fed could kill a baby bull-market rally in U.S. stocks

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    It is the notion that the Federal Reserve could deliver a hawkish jolt to markets even if it refrains from raising rates when its two-day policy meeting ends on Wednesday.

    There are concerns that such an outcome could spark a turnaround in U.S. stocks, especially if an uncomfortably strong reading on May inflation — due this coming Tuesday just as the Fed’s policy meeting is slated to begin — pushes the central bank toward something even more extreme, like delivering a rate increase on Wednesday despite intimating that it plans to abstain.

    The May consumer-price index is forecast to rise 4.0% for the year, down from a rise of 4.9%, while the core index, excluding food and energy prices, is seen easing to a rise of 5.3% from 5.5%.

    On the other hand, signs that the economy has weakened and inflation has continued to fade would help the Fed to justify skipping a rate increase in June — as several senior officials have suggested it will — while signaling that a potential hike at its following meeting in July could be the final increase for the cycle.

    “Softening U.S. data should support calls that a June skip could eventually turn into a July pause. Next week, most of the data is expected to remain weak or little changed: retail sales could be flat m/m, the Fed regional surveys should remain in negative territory, and consumer sentiment will waver,” said Craig Erlam, senior market analyst at OANDA, in emailed commentary.

    See: The Fed’s crystal ball on inflation appears off the mark again. Here’s comes another fix.

    Wednesday’s meeting comes at a critical time for the market. U.S. stocks have powered ahead for more than six months, with the S&P 500
    SPX,
    +0.11%

    having risen more than 20% off its Oct. 12 closing low, according to FactSet. Just this past week, the index exited bear-market territory for the first time in a year.

    The index is up 12% so far in 2023, reversing some of its 19.4% decline from 2022, its biggest calendar-year drop since 2008, according to Dow Jones Market Data.

    So far this year, highflying tech stocks have helped to paper over weakness in other areas of the market. This has started to change over the past two weeks, as small-cap and value-stocks have lurched suddenly higher, but there are fears that the Fed could hurt the most interest-rate sensitive technology names if Chairman Jerome Powell hints at rates rising higher than investors presently anticipate.

    The so-called “Megacap eight” stocks — a group that includes both classes of Alphabet Inc. stock
    GOOG,
    +0.16%

    GOOGL,
    +0.07%
    ,
    Microsoft Corp.
    MSFT,
    +0.47%
    ,
    Tesla Inc.
    TSLA,
    +4.06%
    ,
    Microsoft Corp.
    MSFT,
    +0.47%
    ,
    Netflix Inc.
    NFLX,
    +2.60%
    ,
    Nvidia Corp.
    NVDA,
    +0.68%
    ,
    Meta Platforms Inc.
    META,
    +0.14%

    — have driven nearly all of the S&P 500’s gains this year, according to Ed Yardeni, president of Yardeni Research, who included his analysis in a note to clients.

    But since the beginning of June, the Russell 2000
    RUT,
    -0.80%
    ,
    a gauge of small-cap stocks in the U.S., has risen more than 6.6%, according to FactSet data. The Russell 1000 Value Index
    RLV,
    -0.15%

    has also gained nearly 3.7% in that time. During this period, both have outperformed the tech-heavy Nasdaq Composite
    COMP,
    +0.16%
    ,
    although the Nasdaq remains the market leader, having risen 26.7% since Jan. 1.

    Concerns about the Fed’s plans intensified this week after the Bank of Canada delivered a surprise interest-rate hike, ending a four-month pause. The BOC’s decision followed a similar move by the Reserve Bank of Australia, and partly as a result, U.S. Treasury yields rose and tech-heavy stocks tumbled, with the Nasdaq logging its biggest drop since April 25, according to FactSet.

    While small-caps held up amid the chaos, the reaction stoked fears that something similar might be in store for markets when the Fed delivers its latest decision on interest rates Wednesday.

    Consequences of a ‘hawkish pause’

    Stocks could be in for more turbulence if the Fed signals it plans to follow the BOC and RBA with a hawkish surprise of its own. And it wouldn’t necessarily need to hike rates to pull this off, market strategists said.

    Emerging signs of complacency in the market could complicate its reaction. That the Cboe Volatility Index has fallen back below 15
    VIX,
    +1.32%

    for the first time since before the arrival of COVID-19 is one such sign that investors aren’t worried enough about a potential selloff, said Miller Tabak + Co.’s Chief Market Strategist Matt Maley.

    Another analyst likened the potential fallout from a hawkish Fed to the bad old days of 2022.

    “If the Fed signals that rates will be going up again, the market playbook could read more like 2022 than what we have seen so far in 2023,” said Will Rhind, the founder and CEO of GraniteShares, during a phone interview with MarketWatch.

    Perhaps the biggest wild card is Tuesday’s inflation report. If the numbers come in hot, Powell and his peers could face pressure to hike rates without priming the market first.

    For this reason, Rhind believes investors are underestimating the likelihood of a hike next week, even as Fed funds futures currently see a roughly 70% probability that the central bank will stand pat, according to the CME’s FedWatch tool.

    And Rhind isn’t the only one. Leslie Falconio, chief investment officer at UBS Global Wealth Management, says the Tuesday inflation report could be a make-or-break moment for markets, summing up fears expressed elsewhere on Wall Street in a recent note to clients.

    “We believe another rate increase is on the table, and that the CPI release on 13 June, a day before the Fed decision, will be decisive. In our view, another hike won’t have a material impact on the pace of economic growth,” Falconio said.

    What should investors watch out for?

    Assuming the Fed does forego a hike in June, there are a few key tells that investors should watch for to determine whether a “hawkish pause” is under way.

    Perhaps the most important will be how the Fed handles changes to its closely watched “dot plot.” A modestly higher median dot would send an unmistakable signal to the market that the Fed will continue with its campaign of tightening monetary policy, perhaps to the detriment of the market, said Patrick Saner, head of macro strategy at the Swiss Re Institute.

    “If the Fed skips but wanted to avoid the impression of the hiking cycle being done, it would need to include a revision of the dot plot. They could justify that with a more resilient GDP forecast and a higher inflation outlook. So I think it is the dots and then the statement that will be in focus,” Saner said during a phone interview with MarketWatch.

    Beyond that, whatever the Fed does or says will likely be viewed through the lens of economic data that is due out next week. In addition to the Tuesday inflation report, a report on May retail sales is due out Thursday, and a on consumer sentiment from the University of Michigan will land on Friday. All these data points could influence investors’ impressions of the state of the U.S. economy, and their expectations for how the Fed will behave as a result.

    See also: Puzzled by the ebb and flow of recession worries? Then the MarketWatch weekly recession worry gauge is for you.

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  • A stock-market milestone: Apple is now worth more than the entire Russell 2000

    A stock-market milestone: Apple is now worth more than the entire Russell 2000

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    The market capitalization of Apple Inc. has surpassed that of the entire Russell 2000 for two weeks, the longest stretch on record, according to Bloomberg data.

    Apple’s market capitalization, which measures how much the company is worth based on the value of all its outstanding stock, surpassed that of the Russell 2000
    RUT,
    +1.19%

    on April 27 and has held higher through Monday. The only other time that occurred was Sept. 1, 2020, when Apple’s valuation passed that of the small-cap index for only a day.

    Apple’s premium over this group of small-cap stocks continued to widen over the past two weeks as the consumer-technology giant reported earnings that surpassed Wall Street analysts’ expectations.

    With a market capitalization of roughly $2.7 trillion, Apple is now worth roughly $100 billion more than the combined value of all 2,000 stocks in the Russell 2000, according to Bloomberg data shared with MarketWatch.

    To be sure, the gap narrowed somewhat on Monday as Apple shares declined by 0.4% to $171.80, while the Russell 2000 gained 1.3% to trade at 1,763.

    A team of stock-market analysts from Bespoke Investment Group illustrated the trend in a chart shared on Twitter Monday.

    U.S. equity benchmarks have powered higher in 2023, but some say the strength in popular indexs like the S&P 500 and Nasdaq Composite has masked weakness in other corners of the market.

    Both the S&P 500, which has risen more than 7% year-to-date, and the Nasdaq Composite, which has risen nearly 18%, owe the bulk of their gains to a handful of megacap technology stocks including Apple, Microsoft Corp.
    MSFT,
    +0.16%
    ,
    Alphabet Inc.
    GOOG,
    -0.81%

    and Nvidia Corp.
    NVDA,
    +2.16%

    The top 10 stocks in the S&P 500 hold a 29% weight in the index, and have been responsible for around 70% of its year-to-date performance gains, according to a MarketWatch report from last week.

    See: The S&P 500 is top-heavy with tech. Here’s what that says about future stock-market returns.

    The Russell 2000, meanwhile, is essentially unchanged since the start of 2023. Apple, by comparison, has risen more than 32% since Jan. 1, according to FactSet data. The relative weakness in small-caps has inspired discussion about whether this might be a buying opportunity, as market strategists told Barron’s.

    See: Small-Cap Stocks Have Been Crushed. 3 With Big Potential.

    Small-caps have struggled against a plethora of headwinds since the start of 2023. Shrinking corporate earnings, a string of regional-bank failures and signs of a looming recession have taken a heavy toll. Facing so much uncertainty, equity investors have sought safety in shares of megacap technology names this year following a punishing selloff in 2022.

    “It is pretty incredible that one company could overtake an entire universe of small-cap stocks in terms of size,” said Callie Cox, U.S. equity strategist at eToro, during a phone interview with MarketWatch. “To me, it really speaks to how beaten down small-caps are.”

    When Apple reported earnings for the quarter ended in March last week, the company’s management revealed a surprise growth in its iPhone business, which helped to overcoming a shortfall in Mac revenue. The company also promised investors billions more in dividends and stock repurchases, which helped to boost the stock price. Apple’s shares traded higher in response.

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