Only two days ago as the stock was seeing a strong reaction to earnings, we noted how Microsoft (MSFT) was gaining ground on Apple (AAPL) for the title of world’s largest stock by market cap.  After reporting inline EPS and lower than expected revenues last night, AAPL is lower on earnings for the fifth quarter in a row. Meanwhile, MSFT has risen 6.5% since reporting top and bottom-line beats. In terms of market cap, MSFT has tacked on $149 billion over the past few days while AAPL has lost $82 billion today alone.  Those inverse moves have lifted the market cap of Microsoft above that of Apple for the first time since June 2020.  As shown in the second chart below, over the past few years MSFT and AAPL have battled back and forth for the largest stock spot. From last summer until recently, AAPL held significant ground on MSFT, but that is obviously no longer the case.  Click here to view Bespoke’s premium membership options.

Below are some of the most interesting things we heard on quarterly conference calls from Corporate America this week:

Supply Chain

In terms of days of supply, Ford has historically averaged 75 but ended Q3 with about 20. CFO John Lawler commented, “we are not going back there.”

In terms of the chip shortage, Ford’s Lawler added, “we’re doing everything we can to get our hands on as many chips as we can. But we do see that running through 2022. It could extend into 2023, although we do anticipate the scope and severity of that to reduce as we move through ’22 into ’23.”

In terms of plane production rates, Boeing CEO David Calhoun added, “Raw materials, logistics, and labor availability will also be key watch items for future rate increases.”

According to 3M CEO Mike Roman, “ocean freight costs have more than doubled over the last year, and the number of containers on the water is up 70% because of port congestion.”

Apple CEO Tim Cook stated, “We estimate these constraints had around a $6 billion revenue dollar impact, driven primarily by industrywide silicon shortages and COVID-related manufacturing disruptions.”

Amazon CEO Andy Jassy revealed, “In the fourth quarter, we expect to incur several billion dollars of additional costs in our consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs.”

Labor

Automatic Data Processing CEO Carlos Rodriguez stated, “Our clients are eager to hire, and we are seeing workers return to the labor force, even if it’s gradual.”

According to McDonald’s CEO Chris Kempczinski, “Our US franchisees have never been better positioned to weather the labor and inflation pressures while still investing in growth.”

Microsoft CEO Satya Nedalla stated, “as more people change jobs than ever before, we saw record engagement as they increasingly turn to LinkedIn to connect, learn, grow and get hired.”

COVID related

In Q3, the airline industry saw “global departures increase slightly to an average of 67% of 2019 levels, up from 59% the previous quarter,” according to Calhoun.

Alphabet CFO Ruth Porat commented, “people increasingly are embracing a hybrid work model.” Porat added that the consumer shift to digital is “real and will continue.”

Alphabet CEO Sundar Pichai explained, “as consumers, businesses and schools continue their shift towards hybrid work… customers are turning to Google workspace and our cyber security platform.”

Broader Economy

Evercore CEO John Weinberg stated, “momentum in capital raising for financial sponsors continues and secondary market activity remains high.”

In terms of secular changes, Evercore management believes, “there is clearly a great deal of liquidity in the system that it’s not going to go away soon… we see real opportunity on corporate balance sheets as there is a lot of leverage available.”

According to Baker Hughes CEO Lorenzo Simonelli, “the oil field services market is in the early stages of a broad-based multi-year recovery.”

Johnson & Johnson CFO Joe Wolk stated, “Cost of products sold improved by 200 basis points, driven by recovery from prior year COVID-19 related impacts and favorable enterprise mix [in pharmaceuticals.]”

Wolk added, “in the United States, they are ramping up again and resuming elective procedures.” However, the CFO referenced, “the growing impact from reduced medical staffing on constraining procedure volumes” as a possible headwind.

United Rentals CEO Michael Flannery commented “virtually all key indicators point to a sustained recovery,” adding, “We’re also seeing work build across the entire easy supply chain. Plant maintenance is another big driver for us. We’re seeing that work start up again after being paused for COVID.”

In summary, although the broader economy has largely recovered from the COVID recession, we are still dealing with multiple repercussions, including the global chip and labor shortage. COVID and resulting policies have significantly altered the way in which people work and engage in commerce.

The quotes above are from our detailed Conference Calls publications.  Throughout earnings season, we publish Conference Call summaries for select companies.  These summaries include information regarding each company’s financial results, growth by segment, as well as some aspects of the business that management expects to impact future results.  As always, none of these summaries should be construed as recommendations to buy or sell any securities, and investors should do their own research and/or consult with a financial professional before making any investment decisions.

Our Conference Calls reports are available to Bespoke Institutional subscribers only.  If you’re not currently a Bespoke Institutional subscriber, click here to sign-up for or upgrade to Bespoke Institutional now.

Conference Calls Reports So Far This Earnings Season:

Apple (AAPL)
Amazon (AMZN)
Merck (MRK)
United Rentals (URI)
Ford (F)
Automatic Data Processing (ADP)
Boeing (BA)
Evercore (EVR)
McDonald’s (MCD)
Alphabet (GOOGL)
Microsoft (MSFT)
Digital Realty (DLR)
3M (MMM)
Facebook (FB)
Olin (OLN)
Tesla (TSLA)
Equifax (EFX)
Baker Hughes (BKR)
Netflix (NFLX)
Intuitive Surgical (ISRG)
Johnson & Johnson (JNJ)
NextEra Energy (NEE)

The fifth and final regional Fed manufacturing survey results came in this morning from the tenth district, and like the Richmond and Dallas Fed results, the region’s manufacturing activity saw a significant acceleration in October. The Kansas City Fed’s Composite Index tied the April record high at 31 after rising 9 points month over month.  That was the largest one-month uptick since August 2020. While expectations were slightly lower, the past several months’ readings have been less volatile hovering around record highs.

Feeding into the very strong composite index were historically high readings across almost every other category. All but two indices came in the 90th percentile or better and there were three indices—Number of Employees, Prices Paid, and Supplier Delivery Times—that hit record highs. For some of those categories, this month’s upper decile readings also mark a significant improvement from the prior month. For example, Production, Shipments, and New Orders were coming from readings in the 40th percentile range.  Additionally, breadth was very strong this month with only two indices falling month over month: Backlog of Orders and Material Inventories.  Expectations on the other hand saw weaker breadth in terms of month over month moves and less elevated readings relative to their historical ranges.

As previously mentioned, the most improved area of the report was concerning demand.  New Orders, Production, and Shipments all surged MoM with each one seeing double-digit gains.  Whereas last month these three indices were somewhere in the 40th percentile range, this month there were in the upper decile of their historical range.  Each of those indices experienced big declines last month, so the huge gains in October bring them back to levels last seen in July or August. While those are positives, expectations for Production and Shipments saw large declines ranking in the bottom 3.3% and 1.2% of month-over-month moves.  Given current conditions for production and shipments moved significantly higher, firms were able to work off backlogs as that index fell 7 points to 23 which is the lowest reading since January.

That is not to say supply chains improved though.  Delivery times surged yet again to set another record high for both current conditions and expectations. The MoM increase in expectations we would also note was the largest to date.

Additionally, Prices Paid continued to rise also hitting records for both current and future indices.  While Prices Received were also higher, the indices for that category are off their peak from earlier this year.

The other record high reached this month was for Number of Employees. The index rose 13 points to 34, but potentially because positions are being met, expectations for hiring were weaker. That index continued to roll over falling to 40 in October.  While lower, the current reading is still at historically strong levels.  Although expectations for increasing hiring have been pulling back, Capital Expenditure expectations have continued to rise with that index tying the record high of 38 set back in September 2018. Click here to view Bespoke’s premium membership options.

The weekly sentiment survey from AAII saw a surge in optimism in recent weeks, but it took a step back this week even with the S&P 500 at new highs.  Bullish sentiment fell from a recent high of 46.9% down to 39.8% this week.  Outside of last week, that is still the highest level since the first week of September.

While bullish sentiment saw a significant 7.1 percentage point drop, a relatively small share of those losses turned to the bearish camp. Bearish sentiment only rose 1.6 percentage points to 29.4%.  That is still below levels from two weeks ago and is in line with the average from throughout the summer.

The corresponding moves in bullish and bearish sentiment resulted in the bull-bear spread to fall but bulls continue to outweigh bears by 10.4 percentage points.

As previously mentioned, the largest share of losses to bulls did not go to bears, but instead were picked up by those reporting neutral sentiment.  That reading moved back above 30% this week gaining 5.3 percentage points. Again, that does not mark any sort of new high or low but instead brings sentiment back to similar levels seen only a month or two ago.  Click here to view Bespoke’s premium membership options.

Both initial and continuing jobless claims once again came in below expectations and at new pandemic lows this week. Seasonally adjusted initial claims fell to 281K this week, exceeding expectations by 7K and a 10K drop from last week’s 1K upwardly revised reading. Claims are now only 25K above the level from the week of March 13, 2020; the last week before claims began to print in the millions.

From a seasonal perspective, the fourth quarter and the current week of the year typically see jobless claims move higher having done so 85% of the time historically since 1967. This week went against those seasonal trends as the unadjusted number fell from 257.2K to 245.5K.  While the seasonally adjusted reading is still above, that is actually below the March 13, 2020 reading. In other words, claims are essentially back to where they were just before the pandemic.  That is also the case considering PUA claims are basically negligible around 2.5K for a second week in a row as support for the program has ended.

Continuing claims also set a pandemic low coming in at 2.243 million versus expectations of a decline to 2.42 million. That 237K decline week over week was the largest since the week of July 23rd and the fifth week in a row in which continuing claims were lower.

Including all programs delays the data through the week of October 8th for the most recent reading. Total claims across all programs fell to 2.84 million that week as the unwind of pandemic era programs continue alongside the declines in regular state programs.  PUA and PEUC programs once again were the biggest decliners falling by almost 250K and 87K, respectively. In total since the official end of these programs in early September, these two programs have seen claims fall by 8.78 million. Through the week of October 8th, PUA, PEUC, and Extended Benefits programs only accounted for 632K claims combined which are likely to continue to decline in the near future.  Click here to view Bespoke’s premium membership options.

With a gain of more than 4% today in reaction to earnings, Microsoft (MSFT) is suddenly challenging Apple (AAPL) for the title of world’s largest company.  Coming into today, Apple had a market cap of $2.468 trillion versus Microsoft’s market cap of $2.328 trillion.  That spread of $140 billion has shrunk all the way down to just $27 billion after Microsoft’s gain of $117 billion in market cap today alone.

As shown below, Microsoft (MSFT) had a market cap of $615 billion versus Apple’s (AAPL) market cap of just $15.9 billion back in late December 1999 near the peak of the Dot Com Bubble.  From there, Apple began to gain ground with its iPod and iPhone releases in the early and mid-aughts.  On May 26th, 2010, Apple’s market cap finally crossed above that of Microsoft and didn’t look back for quite some time.  Remember, before shifting focus on the cloud, Microsoft’s business was struggling mightily.  The company’s market cap essentially went sideways for 15 years before exploding higher again in the second half of the 2010s as Office 365 took hold.

While MSFT was actually bigger than AAPL at various points between 2018 and 2020, Apple’s widest market cap margin versus Microsoft actually came in January of this year when Apple was at $2.4 trillion versus MSFT at $1.74 trillion.  Since that peak on January 25th, though, MSFT has been rapidly gaining ground.  It will only take another small move higher on a relative basis for MSFT to eclipse AAPL’s market cap at this point.  AAPL reports earnings on Thursday, so how the stock responds to that report will have a big impact on how this relationship stands heading into the month of November. Click here to view Bespoke’s premium membership options.

It has been awhile since we checked in on Cathie Wood’s ARK ETFs, so below is an updated look at their relative strength versus the S&P 500 SPY ETF.  After absolutely surging versus SPY in 2020 and early 2021, the ARK funds have generally been underperforming for the past six months.  That being said, they’re still well ahead of SPY since the start of 2020 given that all the relative strength lines are solidly in positive territory.  As shown, the ARK Next Generation Internet ETF (ARKW) is doing the best versus SPY over the time period shown.  Notably, the ARK Autonomous Tech (ARKQ), Genomic Revolution (ARKG), and Fintech Innovation (ARKF) ETFs have all performed roughly the same versus SPY since the start of 2020 even though they cover different industries and groups.

Taking a look at the largest of the ARKK funds, the ARK Innovation ETF (ARKK) has basically been range bound between $100 and $125 over the last six months.  As shown below, ARKK recently managed to re-take its 50-day moving average, but it had trouble getting above resistance at its 200-day moving average. That is even with the massive rally we’ve seen in Tesla (TSLA) lately, which is ARKK’s largest holding at 10%.

As previously mentioned, TSLA is by far the largest holding of ARKK, especially after having rallied 17.8% in the past week alone. Skillz (SKLZ) has actually posted an even larger 20.9% rally in the same span, but its weighting is far smaller at only 0.69%, meaning its gains have been much less impactful on ARKK’s performance.  As for the rest of the holdings, not even half are in the green over the past five days and only 38% are in the green year to date. Three holdings—Proto Labs (PRLB), Materialise (MTLS), and Berkeley Lights (BLI)—have seen their price more than cut in half since the start of the year. As shown in the snapshot of our Trend Analyzer below, the bulk of these stocks are also in sideways trends.

Now in the throes of earnings season, most of the ARKK holdings have yet to report results but they are scheduled to do so in the coming weeks.  Of those left to report, Roku (ROKU) has averaged the strongest one-day gain in reaction to earnings historically with strong beat rates for sales, EPS, and guidance. Speaking of beat rates, DocuSign (DOCU) is notable in having almost exclusively reported Triple Plays throughout its three-year earnings history.  Click here to view Bespoke’s premium membership options.

There are only three sessions left in the month of October, and the S&P 500 enters them up 6.2% month to date. That marks the best performance through the final three trading days of any month since last November when the S&P 500 was up 11.2% MTD. In the post-WWII period, there have been 95 occurrences where the S&P 500 was up 5% MTD heading into the final three trading days of the month.  In those prior months, the S&P 500 has averaged a gain of 7 bps in the final three trading days which is below the average gain of 22 bps in the final three days for all months during that same period.  While there is that short-term underperformance, the last three trading days of the given month through the first week of the next month has averaged better than average performance (0.72% vs 0.61%).  As for where the S&P 500 goes from there, performance is mixed relative to the norm. Through the end of the following month, returns tend to again be worse than normal, but three months later the S&P 500 has averaged a nearly half percentage point larger gain than the norm.  Click here to view Bespoke’s premium membership options.