On 23 March 2020, the stock market experienced a 40% crash amidst COVID-19 fears. However, the S&P 500 (the most popular US stock benchmark index) has experienced a significant bull run since then, even breaking All-Time Highs. Upon further research, this bull run has been greatly driven by the technology industry. As such, we will be analysing the top 5 holdings (Apple, Microsoft, Amazon, Facebook and Alphabet) of the S&P 500 to determine whether the changes in their balance sheets justify their increased market capitalisation and the concomitant market rally. Coincidentally, they are also major companies in the technology industry.
For the sake of simplicity, we will just be calling the top 5 holdings of the S&P500 to be 'FANG', albeit being slightly incorrect.
Our research is based on US equities for 2 reasons. First, data on US equities are more easily accessible for free. Second, the US stock market is one of the few stock markets that have experienced a bull run since the crash in March 2020. In contrast, the Singapore stock market, as measured by the STI index, has not recovered from the crash.
There are also some caveats to this project.
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It remains difficult to justify the qualitative aspects of businesses such as economic moat (business' ability to maintain competitive advantages over its competitors) or its competitors.
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Due to the timeline of the project, we are only able to make use of data from Q1 and Q2 of 2020. Therefore, the machine learning model used may be limited due to the lack of data.
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The machine learning models to be used are simplified and hold many assumptions. In addition, the discounted cash flow analysis that will later be used to predict a business’ future cash flow may not be 100% reliable as the rates are merely an estimate.