*Currency markets and Bitcoin trade 24 hours, the figures here indicate movements between 9am and 4pm ET #1 Apple briefly crosses into Bear Market Territory
Another day in the red for U.S. equity markets as Apple led a tech stock slide that bled across the major indexes. The S&P 500 has fallen for 5 straight sessions and is now negative for the month after falling 7 percent in October.
Shares of Apple, that recovered a little, are now teetering on the edge of a Bear Market, down nearly 20 percent or more from their recent highs. A third of the stocks in the S&P 500 are also in Bear Market territory, even though the entire index is not. But, as JC Parets likes to say, "It's a market of stocks, not just a stock market."
Why it Matters: As we know, Apple is a particularly heavy stock, accounting for more than 4 percent of the S&P 500, which is a market capitalization weighted index. It's also the most widely held stock in ETFs and among the most widely held stock in mutual funds. It accounts for 4 percent of the Vanguard 500 Index Investor and the SPDR S&P 500 ETF. Even if you think you don't own any of the stock, there is a pretty good chance one of the mutual funds in your retirement accounts does, if you have one of those. It's also Warren Buffett's top equity position inside Berkshire Hathaway's equity portfolio, which owns 251 million shares of the company.
As a reminder, these recent declines started when Apple reported its most recent quarterly earnings on Nov 1. In its conference call with analysts, the company said it would no longer break out unit sales of iPhones anymore. That didn't go over very well. The company also reigned in its fiscal first quarter of 2019 forecasts by a couple billion citing slowing international sales. That didn't go over well, either.
Never mind that Apple had just reported its best quarter ever, generating $63 billion in revenue in just 90 days. Investors only care about the future, and it didn't look as good as the past.
Cut to Monday of this week when Lumentum Holdings, the company that supplies the facial recognition technology inside the iPhone, cut its sales forecasts citing lower demand from one of its 'large customers'. Investors and analysts read between the lines and hit the Sell button faster than you can punch in the security code on your device.
Apple, like every other stock, has been in a bear market before. These things happen. See our Chart of the Day, below, to see what happened the last few times it entered Bear Territory.
What's Next: The fourth quarter is typically strong for Apple, given holiday sales. It still expects to generate between $89-93 billion in sales for the quarter, which is staggering. Unfortunately, for Apple and many other large growth technology companies, it needs to crush those estimates to regain investor confidence again.
For individual investors wondering what they should do if they own Apple outright or they own ETFs that hold it, ask yourself these questions: - Am I too concentrated in this one stock?
- If it fell another 20 percent, how would I feel?
- If it rises 20 percent and gets back to par, will I sell it?
If those answers are 'Yes', 'Terrible' and 'Yes', you are likely too concentrated in that stock, you need to diversify your portfolio, and you need better rules on how to manage it. - PG&E shares plummet on possible connection to CA wildfire: Bloomberg
- Buffett/Berkshire adds JPMorgan, Oracle, PNC Financial and Travelers to its portfolio.
- SNAP in sell off on news that SEC and DOJ probes into pre-IPO disclosures: Reuters
- Theresa May gets cabinet approval for Brexit plan: Reuters
- Why U.S. CEOs aren't worried about a recession
- Hedge Funds go negative for the year
- Why Facebook is overvalued despite 35% plunge
- Electronic Arts faces more declines as profits drop
#2 Chart of the Day: Apple's history with bear markets
Apple's stock has been battered pretty relentlessly in the past several weeks, particularly after the company's earnings release less than two weeks ago forecasted lower sales of its flagship products.
During the course of Apple's most recent fall, the stock dropped from its record high of $233 that was reached in early October to enter into a downside correction (defined as a 10% or greater fall from the most recent peak) by late October. The decline intensified in November, as AAPL continued to fall towards its 200-day moving average, finally crossing below it on Tuesday. Wednesday got even worse, as the stock extended its plunge to break cleanly below the 200-day MA and was on the brink of what many may consider bear market territory. This generally just means a 20% or greater drop from the most recent peak. The stock price closed on Wednesday just short of that -20%.
Now, before Apple investors panic too much about what this means for the stock, they should be reminded that AAPL has had many corrections and even a couple of big bear market runs in the past ten years. And what has always ultimately happened afterwards? Though it may sometimes take a while, the stock has always recovered and gone on to make new highs. There was a whopping 45% drop in 2012-13. And 2015-16 saw a 33% decline. Still, the stock is up more than 1200% since the same time ten years ago. Will the current drop defy the past and turn into a full-fledged reversal and lasting bear market? There's always a possibility, but we believe this is highly unlikely and history should repeat once again.  Enjoy the Market Sum? Share it with a friend. CONNECT WITH INVESTOPEDIA |
No comments:
Post a Comment