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Dow Jones Rallies 250 Points Thanks to Tech Giants Apple and Microsoft

By Timothy Green – Aug 12, 2020 at 2:44PM

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Valuations are already stretched for the tech behemoths, but that didn't matter on Wednesday.

Tech stocks were rallying on Wednesday, helping to push the Dow Jones Industrial Average (^DJI -0.24%) up about 1% by 2 p.m. EDT. Daily confirmed cases of COVID-19 in the United States remain elevated compared to the first peak earlier this year, but the numbers have been trending lower. The U.S. recorded just under 47,000 cases on August 11, down from over 70,000 daily cases in mid-July.

The stock rally came despite a lack of progress getting a new stimulus bill through Congress. Talks between the White House and Congressional Democrats broke down last week, with the two sides far apart on key issues like unemployment insurance. Executive orders from President Trump aimed to bring some relief to Americans, but it's unclear how much the measures will help.

Tech stocks Apple (AAPL 1.00%) and Microsoft (MSFT -0.04%) were rallying on Wednesday, fueling the Dow's rise.

A glowing globe floats above a person's hand.

Image source: Getty Images.

Big tech leads the way

The Dow's biggest gainers on Wednesday were tech giants Apple and Microsoft. Both stocks are up big this year: Apple is up around 53%, and Microsoft has surged 32%. By Wednesday afternoon, Apple stock had gained 3%, while Microsoft stock had gained 2.5%.

There wasn't any real news driving these gains. Apple's rise comes despite multiple headwinds in China. On Monday, analyst Ming-Chi Kuo estimated that Apple could see global iPhone volumes tumble as much as 30% if the executive order effectively banning Chinese app WeChat requires Apple to remove the app from its App Stores worldwide.

Even if the WeChat ban has a limited impact, Apple may face trouble in China regardless. On Tuesday, analysts at Evercore warned that smartphone shipments in China fell 35% in July on a year-over-year basis. While Evercore expects Apple to outperform the broader smartphone market, significant growth is going to be tough to achieve.

Microsoft is still working to acquire the U.S. operations of Chinese social media company TikTok, but a deal may be unlikely at this point. In other Microsoft news, the company has delayed the launch of Halo Infinite, a game that was supposed to launch alongside the new Xbox Series X game console later this year. The delay will make Microsoft's task of taking on Sony's PlayStation 5 a bit more difficult.

While the new Halo is delayed, Microsoft is pushing forward with plans to launch a dual-screen Android smartphone. The Surface Duo, featuring two screens and priced at an eye-watering $1,399, will launch on September 10. Microsoft previously failed to make its Windows Phone mobile OS a player in the smartphone market. While the Surface Duo certainly won't be a mass market hit, Microsoft may find a niche for its exotic smartphone.

Apple and Microsoft stocks are rising despite historically lofty valuations. Both stocks trade right around 35 times trailing-twelve-month earnings, despite trillion-dollar-plus valuations, a pandemic, and a highly uncertain economic outlook. Even if the companies' results hold up well as the pandemic continues to unfold, the pricey stocks may not follow suit.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft and short January 2021 $115 calls on Microsoft. The Motley Fool has a disclosure policy.

Stocks Mentioned

Apple Stock Quote
$144.07 (1.00%) $1.42
Microsoft Stock Quote
$247.31 (-0.04%) $0.09
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$33,701.83 (-0.24%) $-79.65

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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