Good morning. On Fortune’s radar today:

Fortune’sradar today:

• Apple at $5 trillion: Extremely, scarily expensive.
• Wall Street questions Warsh’s credibility after he left interest rates below the level of inflation, again.
• Traders are losing patience with the war: “Whenever reports suggest that diplomacy is working, it probably isn’t.”
• Bank of America’s “chicken little worker.”
• The White House teleprompter guy who bet on Kalshi loses his job.

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ONE BIG THING

Extremely, scarily expensive: The mundane secret of how Apple, at $5 trillion, became the most valuable company on the planet

Around midday on July 28, Apple stock jumped around 3% to achieve, for the first time, a market cap of $5 trillion, hitting a number that only one enterprise, Nvidia, had ever reached.

In doing so, Apple became something it seldom was before: extremely, even scarily, expensive.

The recent liftoff makes Apple by far the priciest member of the Mag 7, of course excluding Tesla. Its price-to-earnings ratio reached 41.2 on the “$5 trillion day,” between 37% and 145% above the figures for Nvidia (30.2), Amazon (27.7), Meta (21.6), and Alphabet (16.8).

How did the company achieve this? Buybacks. Apple depends heavily on share buybacks to raise its EPS. In fiscal 2024 and 2025 (ended September 30), it spent $185 billion in repurchases, equal to 92% of its GAAP net earnings.

• Read the story here:Flirting with $5 trillion, Apple has never been more valuable—or a riskier bet for investors - Shawn Tully

THE MARKETS

Wall Street is openly questioning Warsh’s credibility after he left interest rates below the level of inflation

The S&P 500 declined 1.52% yesterday after the Fed left interest rates at the 3.5% level, despite the fact that PCE inflation is 4.1% and has been above the Fed’s 2% target for five years. The implication, following Fed Chairman Kevin Warsh’s statements on the hold yesterday, is that traders now expect the Fed to raise rates in September—thus making money more expensive to borrow, which is generally bad for stocks. The Nasdaq 100 is down more than 10% over the last month, and thus in official “correction” territory. The CME Fedwatch index shows that 65% of Fed futures traders currently think Warsh will raise the rate as his next move:

Analysts are harsh on Warsh

The reviews of Warsh’s decision yesterday have been brutal. The negativity began in his press conference, in which finance reporters peppered him with questions on a single theme: If inflation has been too high for five years, why are you doing nothing about it? Neil Irwin of Axios put it most succinctly: “So the Fed-funds rate is now … about 100 basis points below most Taylor rule estimates. You’re hitting your employment mandate. Inflation stays high. Why should rates not be higher today?”

Warsh, referring to longer-dated bonds, responded that rates were now higher. “So rates are higher today than they were 42 days ago. Markets have made decisions because we stepped back in part from trying to influence those.” Indeed, the 30-year Treasury rose to 5.23% in the last 24 hours, the highest it has been in 19 years.

The problem is that higher rates on U.S. government bonds are a question of credibility—if investors demand a higher risk premium for holding them, it suggests they have greater worries that the government isn’t acting strongly enough against inflation.

So the bond market thinks Warsh lacks credibility while the stock market is betting that Warsh will be forced to raise rates in September.

In his prepared remarks, Warsh also appeared to admit that the Fed was getting it wrong. He said: “Five years of high inflation have left a mistaken impression that is hard to shake: that the Fed’s implicit inflation target was somehow above 2 percent. … we understand that the five-plus years of inflation above target cannot be cured in nine weeks—or by a single month of modest price decreases.”

Thus his failure to raise rates has left many baffled. Commentary from Wall Street analysts has been brutal:

• “Warsh didn’t convey the message clearly or explicitly, and the bond market puked on him.” —Jon Hilsenrath of Serpa Pinto Advisory.
• “This is a classic central-bank credibility shock.”—Mark Cabana, head of U.S. rates strategy, Bank of America.
• “The biggest failure of the press conference was that Warsh didn’t explain why they didn’t hike.”—Robert Sockin, chief US economist at PGIM.
• “It’s not that Warsh’s communications policy is wrong per se. The problem is that his description of the policy is nonsense, which makes markets’ jobs harder.”—FT columnist Robert Armstrong.
• “Policy strategy lacks credibility.”—Ben Emons of Highline Asset Management and FedWatch Advisors.

The gloomy icing on this depressing cake? Centcom reported that U.S. forces launched “a heavy wave of strikes against Iran” in retaliation for Iran’s previous bombings, which pushed the price of oil above $90 per barrel of Brent Crude this morning.

• S&P 500 futureswere up 0.41% this morning. The index lost 1.52% yesterday.
• In Europe,the Stoxx 600 was up 0.55% in early trading and the U.K.’s FTSE 100 was up 0.46% before lunch.
• Asia:South Korea’s KOSPI was down 1.23%. Japan’s Nikkei 225 was up 0.71%. India’s Nifty 50 was up 0.29%. China’s CSI 300 was down 1.1%.
• Brent crudewas $90 per barrel this morning up from a low of $87 yesterday.
• Bitcoinwas $64.5

Small cap tech stocks’ wild ride—up 237%, down 36%

The 25 best-performing companies in the first half of the year among the Russel 1,000 small-cap companies are mostly tech, AI, and chip stocks, notes the Bespoke Investment Group. They’ve been on a wild ride: Although on average they’re up 238% for the year—a massive runup—they lost 36% of their value in July so far in the anti-AI tech stock correction:

IRAN

Investors are losing patience with the war: ‘Whenever reports suggest that diplomacy is working, it probably isn't’

Pimco economist Tiffany Wilding and her colleague Greg Sharenow, a portfolio manager, don’t believe that President Trump can solve the Iran conflict anytime soon. “Given the lack of trust and the competing, often non-intersecting interests of the parties, a solution is hard to bank on,” they said in an unusually strongly worded email.

That’s a problem given how serious the situation is, they argue. The Iranians have demonstrated an ability to close both the Strait of Hormuz and the Bab al-Mandeb. And Ukraine’s recent successes in its war with Russia have reduced Moscow’s oil processing capacity to “its lowest level in over 20 years,” they said.

At the same time, the war has reduced the world’s strategic petroleum reserves. The U.S. store has dwindled down to levels last seen in 1983, they said.

“The room for error is minute,” they said. “This is, at its core, a stagflationary supply shock: It lifts headline inflation broadly, while weighing on activity,” they said.

“Put simply, the current state of affairs in the Middle East, Ukraine, and Russia is not sustainable.”

Over at Macquarie, Thierry Wizman and Gareth Berry also sound like they’re exasperated with the unending conflict. On one day, President Trump optimistically talks up the chances of peace, and then on the next the bombing resumes, they said in a note to clients: “Whenever reports suggest that diplomacy is working, it probably isn't."

MORE FROM FORTUNE

Inside Ikea’s big bet on humans in the age of AI - Claire Zillman

New Dow CEO drives ‘transformation’ back to profitability amid oil market upheaval - Jordan Blum

Fast-food execs keep pushing for more AI systems, but fail to see the big picture: Customers still want humans - Joshua Hong

Hollywood’s ‘memory moment’: How Spider-Man vs. The Odyssey is driving the box office’s best summer since the pandemic - Nick Lichtenberg

Mamdani’s pied-à-terre tax was designed to hit the wealthy, but it’s sending most New Yorkers to their estate lawyers - Catherina Gioino

Trump’s dollar déjà vu: what an uncanny chart about the greenback shows about American exceptionalism - Nick Lichtenberg

CHART OF THE DAY

Workers today are like ‘Chicken Little,’ Bank of America says

The U.S. unemployment rate has a roughly inverse relationship with the Conference Board's sentiment survey, in which workers are asked if they feel that jobs are plentiful or hard to find. For example, if unemployment is low, then respondents tend to lean toward the “jobs plentiful” option.

But not right now. As this chart from Bank of America’s Aditya Bhave shows, unemployment (on the vertical axis) is at only 4.2%, but it’s near zero on the sentiment axis. Workers feel like unemployment is at 5%-plus, in other words. Bhave rather unkindly calls this phenom “the chicken little worker.”

• Counterpoint:Perhaps workers are over-pessimistic because unemployment has been trending up consistently since 2023. It may be statistically low now, but it’s 24% higher today than it was at its nadir three years ago.

NUMBER OF THE DAY

$140 billion

The amount of IEEPA tariff refunds that companies will probably receive by the end of October, according to Andy Laperriere and his team at Piper Sandler. Don’t expect that windfall to show up in the economy, however. President Trump’s new tariffs will maintain the effective import duty level at 7% so the money will eventually end up back inside the U.S. Treasury.

THE FRONT PAGES TODAY

Netanyahu confronts Vance over his criticism of Israeli government - Axios

Poland Likely Hit by Russian Missile, Premier Says - Bloomberg

ONE MORE THING

White House teleprompter guy who won $100,000 on Kalshi has left the building

A White House teleprompter operator who was put on unpaid leave after news reports he had used inside knowledge to make bets about President Trump’s speeches on the online prediction market Kalshi is no longer in his post, a White House official told the AP.

The official said that the teleprompter operator, Gabriel Perez, “no longer works in the federal government.” The official would not say whether he resigned or was fired.

The White House confirmed earlier this month that Perez had been placed on unpaid leave after ABC News reported he had used his inside knowledge to win more than $100,000 betting on what the president would say in big speeches, including the State of the Union address earlier this year.

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