🎙️ The Little Guys

One of Warren Buffett’s greatest investments keeps hitting new highs.

📱 Apple stock hit another record on Monday after annual sales in India reached a record of almost $8 billion, a 33% jump over last year. iPhones accounted for more than half of the sales, per Bloomberg.

“I see it as an incredibly exciting market, and it’s a major focus for us,” CEO Tim Cook said this year of the growing Indian market.

Meanwhile, the broader market climbed slightly higher Monday to fresh highs after Donald Trump’s assassination attack improved his chances of taking over the White House.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Amazon hits prime time for earnings expansion

• The stock market’s momentum wave

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

🍾 The Big Day in Little Stocks

Last Thursday, the stock market had a pretty big reversal, particularly affecting the Magnificent Seven mega-cap stocks and AI-related investments.

Small stocks rebounded: The Russell 2000 rose 3.6%. But the Magnificent Seven tech stocks had their worst day since April 2023, falling 4.5%, and traditional value stocks outperformed growth stocks by a wide margin — value stocks posted their best day compared with growth stocks since November 2020.

• Even global stocks, particularly European, outperformed U.S. stocks.
  

• Consider this: Small stocks had their third-best day compared with mega-cap stocks since at least 1995.
  

• Although 396 S&P 500 stocks rose, big tech’s losses dragged down the index. And the average stock beat the ordinary, market-value-weighted index by the most since November 2020, the day that tests showed the first vaccine against Covid worked.

Gravity pulls: Look, it’s just one day, but The Wall Street Journal compared the reversal to breaking waves:  

• “Waves break when they reach the shore because the sea floor drags on their base, while the energy at the crest keeps pushing forward—until gravity pulls it down. No, this isn’t a surfing lesson: This was Thursday’s stock market.”

A few possible explanations and takeaways are worth considering, including economic factors: Slowing inflation increases the likelihood of rate cuts, benefiting smaller companies and value stocks. Specifically, more rate cuts bring down bond yields, which is good news for stocks suffering from higher rates. Often, smaller firms borrow from banks at so-called floating rates, not the bond market, where interest rates tend to be fixed over longer periods.

Why it matters:

The question: Could Thursday be a sign that we’ll see more market rotation in the coming months, or will it remain big tech-dominated? 

Perhaps some investors sitting on big profits were happy to take a little off their big tech positions, given that AI optimism has driven hundreds of billions of dollars into companies like Alphabet, Meta, Apple, and Nvidia.

Also of note: Sharp gains Monday for financial stocks helped the sector close at a record high.

Final thoughts: Basically, WSJ isn’t saying a tech-led selloff is here. Nobody knows the future. It’s simply worth pointing out that Big Tech’s dominance likely isn’t permanent or healthy over a long stretch. As seen in previous tech cycles, market leaders can face challenges, and a natural rotation could emerge — should the bull market keep chugging.

Read more

More Headlines

🗳️ Bill Ackman and Elon Musk endorse Trump in the wake of Saturday's assassination attempt

🖥️ Google in talks to acquire cloud security company Wiz for $23 billion

📈 Bitcoin jumps as markets see increased odds of election victory for pro-Bitcoin Trump

💸 The median salary in the 25 biggest U.S. cities

🛑 OpenAI illegally barred staff from airing safety risks, whistleblowers say

📦 Amazon Hits Prime Time for Earnings Expansion

Amazon is gearing up for a major sales event this week, but the tech giant's real concern is its ability to maintain profitability across its business segments.

Prime Day, Amazon's annual shopping extravaganza, kicks off on July 16, though investors are already celebrating the company's recent success. 

• Improved sales growth and a big boost in profitability have driven Amazon's stock to record highs this summer, pushing its market value beyond the $2 trillion mark.
  

• The Wall Street Journal reports, “Amazon’s operating income has surged by triple-digit percentages over the past four quarters and is expected to hit more than $62 billion this year, according to consensus projections by FactSet.”

While the AI frenzy has contributed — all major tech companies have seen healthy gains — Amazon's journey has been more of a resurgence. The company's market cap approached $2 trillion three years ago, coinciding with Jeff Bezos handing over the CEO role to Andy Jassy. 

But then the stock plummeted as revenue growth slowed and expansion costs ate into profits: Amazon’s operating margin was 6.8% the quarter before Jassy took over; it hit 1.8% in the final quarter of 2022. 

Now, investors are banking on Amazon maintaining its focus on profitability rather than reverting to heavy investment. The company's operating income has seen triple-digit growth over the past year, and projections suggest a large improvement in operating margins compared to recent years.

Continued stock growth will require more than just a successful Prime Day. 

• The event is expected to generate enormous sales volume, but Amazon's $50 billion advertising business and cloud computing divisions are increasingly crucial to its bottom line. Both sectors have shown momentum: AWS cloud revenue is expected to grow rapidly, and the advertising business is poised for further expansion.

Tech gains: Shares of Amazon, Microsoft, Apple, Alphabet, and Facebook parent Meta have averaged a 44% gain in the last 12 months. Nvidia’s stock price nearly tripled during that period. Those companies make up over 31% of the S&P 500’s total market capitalization; the S&P 500 Equal Weight Index has risen a touch over 10% in the past year.

Why it matters:

Amazon's rapidly improving profitability has actually made its stock appear more reasonably priced, even as its stock price has risen. 

One measure, the company's price-to-earnings ratio, has fallen considerably since it first reached a $1 trillion market cap. While still trading at a premium compared to some tech giants, the gap has narrowed as Amazon's earnings have strengthened.

• At the $2 trillion mark, the Everything Store might present a more attractive value proposition than it has in quite some time.

Read more

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Quick Poll

On Friday, we asked: Another summer weekend is here — what's your ideal weekend activity?

— About two-thirds of respondents like to spend their summer weekends relaxing at home or doing an outdoor adventure. One reader said, “We have had a seasonal campsite for 16 years. It is our time together. A campfire with friends. An occasional beer and s’mores. Life is good!”

— One person who enjoys using weekends to catch up with friends and family said, “So much of the work week is planned and scripted, so it is nice to take as much time as possible to enjoy family, friends, nature, and community.”

— Another simply said, “Investment analysis, of course!”

See you next time!

That's it for today on We Study Markets!

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