By Craig McAvinue – 1 July, 2025
"The basic story remains simple and never ending. Stocks aren’t lottery tickets. There’s a company attached to every share"
July has come and gone and the upward trend in major developed markets across the world continues….
After a year of losing ground, the US dollar bounced back against other currencies…
Data from Google Finance
Strong corporate earnings in some technology giants again fuelled gains during July, with two companies hitting the landmark market capitalization of US$4 trillion, Nvidia and Microsoft. Apple was the first business to reach previous landmarks of US$1 trillion (August 2018), US$2 trillion (August 2020) and US$ 3 trillion (January 2022)
The size of these businesses now is difficult to comprehend. To give a comparison the whole of the FTSE 100 is US$2.7 trillion. Coupled with the other components of the Magnificent Seven, their combined market capitalization of US$19 trillion is around on par with the total value of the UK, Japanese, Indian and Hong Kong stock markets combined……seven companies whose size matches the total of four of the world’s most developed stock markets.
So price movements are going to have a huge effect. Many of my reports this year have been focused on these giants of industry and whilst at the risk of being repetitive, they really do move the needle.
A deeper dive however reveals that it has not always been plain sailing for all of the M7’s share prices this year. Meta (formerly Facebook) joins Microsoft and Nvidia in having a stellar year, with all three showing returns in excess of 25% year to date. Amazon and Alphabet (Google) have had a rather benign year with gains currently sitting less than 5%, yet Apple and Tesla have had quite a pasting with their share prices down around 20%.
With these movements in these share values so significant, it brings into play the whole active versus passive argument on investing. The purchasing of an S&P 500 tracker no longer has the diversification it once did with around a third of money invested here sat in seven companies. Advocates of the passive approach would argue that the differing movements in the shares prices mentioned above give weight to taking this approach. After all, the overall return is good and as there will always be winners and losers. The passive approach therefore lowers your overall risk by owning both.
Active fund managers who were able to identify that Nvidia, Microsoft and Meta will fly whilst Apple and Tesla flounder, would have by far outperformed the passive. That said, what about those who went with large Apple and Tesla exposure, your money is down.
There is though one contributing factor as to why the three aforementioned companies have had such a good year: their exposure and investment in Artificial Intelligence (“AI”)
I had mentioned in a previous report that only around 4-5% of people are currently utilising AI tools, Personally I am a convert in that last few months and once you get used to having your questions answered so quickly, succinctly and without needing to “google”, you will never look back. So the growth still exists albeit if some of the Price to Earnings ratios may seem a bit toppy and the opportunity for profit takers in the short term could see some price pullback.
Volatility remains, as it will do throughout Trump’s stewardship. Tariff announcements are coming thick and fast in August so expect a bumpy ride this month…..
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