• Microsoft and Apple are the only two US companies with a market cap above $2 trillion. Last week, Microsoft edged Apple out as the most valuable company, partially a result of Apple's warning it is struggling with supply chain issues and Microsoft reporting strong earnings. Microsoft now controls 20% of the cloud-computing market…only behind Amazon which has 40%.
• With oil prices rising over 60% so far this year, the largest energy companies are generating extremely large cash flows. Despite this development, companies like Exxon and Chevron are choosing to return the cash back to investors through dividends and buybacks rather than invest in more production as they have in the past. Case in point, Chevron generated the most free cash flow in its 142 year history but still plans to keep capital spending 20% below its pre-covid levels.
• With interest rates rising some investors are looking for stocks that can still offer a higher [dividend] yield than bonds. In particular, the energy sector (yield 3.8%), utility sector (yield 3.1%), and consumer staples (yield 2.6%) have looked attractive. Yet, even lower-yielding stocks can perform well during periods of rising rates. Since the 1950s the S&P500 has risen an average of 12% during the 15 times that the 10-yr treasury rose 1.5% off of its low point.
• Often at the end of the year investors will sell their stock positions that have losses to reduce their end-of-year tax bill, in a process called “tax harvesting”. A recent analysis from Bank of America indicates that this strategy may lead to overselling in certain stocks. In fact, since the Tax Reform Act was passed in 1986, stocks down 10% or more from January 1^st– October 31^stended up outperforming the S&P500 by an average of 1.6% over the next three months.