US stocks powered ahead, driven by technology companies. International stocks remained flat as the dollar strengthened and trade talks returned to the headlines. The US and Mexico agreed in principle to a trade agreement to replace NAFTA, but there are significant hurdles to make it law and Canada is still in negotiation.

Weekly Returns

S&P 500: 2,901 (+0.9%)
FTSE All-World ex-US (VEU): (-0.1%)
US 10 Year Treasury Yield: 2.86% (+0.04%)
Gold: $1,201 (-0.3%)
EUR/USD: $1.160 (-0.2%)

Major Events

• Monday – Tesla shares fell modestly after CEO Elon Musk said over the weekend that he was abandoning an effort to take the company private.
• Monday – The US and Mexico agreed to a framework for a new trade pact and President Trump said he would give Canada until the end of the week to join.
• Tuesday – President Trump accused Google of elevating negative views and news about him in search results.
• Wednesday – Toyota said it was investing $500 million in Uber in a joint effort to work on self-driving vehicles.
• Thursday – Merrill Lynch said it would resume charging commissions in retirement accounts after the DOL fiduciary rule was defeated.
• Friday – The US and Canada missed a deadline to reach a new trade deal but agreed to continue discussions.
• Friday – Coca-Cola announced it is buying British coffee chain Costa.

Our Take

Apple and Amazon were each up about 5% this week. That doesn’t sound especially noteworthy until you take a step back and consider that these upticks represent over $100 billion of valuation combined. Year to date, the two companies are up roughly 35% and 70%, respectively. Now we’re talking about around $500 billion of added valuation in eight months, or around the entire value of consumer giants Nike, Starbucks, McDonalds and Disney in their long histories combined.

Apple and Amazon are exciting companies, but there hasn’t been any huge news from either company beyond very solid execution results. Either the market mispriced them too low at the beginning of the year or is mispricing them too highly now. Only time will tell.

What seems to be happening is that investors are now pouring money into the major tech darlings with little regard for price or valuation. There is some evidence that a considerable amount of this money is coming from overseas, including wealthy investors in emerging markets who are increasingly concerned about currency risk and are attracted to the rising dollar and the seemingly unstoppable rise of US tech stocks.

There is a lot of talk that we are in a tech bubble, and there has been for some time. Apple is trading at 4 times sales and 20 times earnings. That is rich for what is primarily a hardware company but hardly feels “bubblish”. Amazon is trickier to value. True bubbles tend to inflate without rhyme or reason before popping. Maybe we’re entering that phase. The tricky part is that phase, if it happens, means prices have dislodged from fundamentals. Once the link with logic is broken, it can last longer and be more powerful than many expect – especially those who tend to be more analytical and numbers driven.