THE rise of Apple shares over the last few years was meteoric. Their fall over last few days has been traumatic. But these gyrations may not matter much to the overall stock market.
They will matter, of course, if you lost money as Apple dropped from $702 in September to $439.88 on Friday. And the company’s struggles may be of more than passing interest even if you never intend to own any of its shares.
Apple remains a colossus, even if Exxon Mobil surpassed it as the most valuable publicly traded company in the world on Friday, exactly one year after iPhone sales propelled Apple to the top spot. Still, all of those iPhones, iPads and other gadgets make Apple matter in many households.
But the company’s influence on the stock market is another question. Aside from the drag that Apple’s decline has imposed on indexes that include it, its recent travails haven’t affected other stocks very much, and they don’t provide much information about the market as a whole. That’s the view of Paul Hickey, co-founder of the Bespoke Investment Group, who has some statistics to support it.
“The company just isn’t the market bellwether,” he said.
In good times and bad, Apple has largely gone its own way, and the rest of the market hasn’t followed its lead. Apple isn’t nearly as influential as, say, I.B.M., which appears to be the true market bellwether, Mr. Hickey contends.
I.B.M. is the market leader — the stock that other stocks follow — based on Bespoke’s calculations, which are boiled down into one statistic. That is the likelihood that a stock’s return on the day after its quarterly earnings report matches the direction of the Standard Poor’s 500-stock index over the next five weeks.
Over the last decade, for example, the rise or fall of I.B.M. stock on the day after the company reports earnings has matched the S. P. 500’s direction 75 percent of the time. That’s the highest percentage for any stock in the index over that period. The comparable figure for Apple is only 37.5 percent.
If those tendencies continue — and that’s a big “if” — bulls have reason to cheer. Both companies issued earnings reports last week, and they received very different reactions in the market. After the close of trading on Tuesday, I.B.M. reported rising profits on a modest decline in revenue, and the market reaction was strikingly positive. I.B.M. shares rose 4.4 percent on Wednesday. If I.B.M. is the market bellwether, it implies that over the next five weeks, the overall market is likely to rise.
Apple, on the other hand, reported earnings after hours on Wednesday, and the market reaction was brutal. Apple’s guidance for 2013 disappointed analysts — its profit was flat although its revenue grew — and its shares fell more than 12 percent on Thursday. But Apple isn’t a bellwether, Mr. Hickey says. Its earnings reports and its returns the next day have not matched the market’s subsequent five-week direction with any regularity.
Looking at the short term, Apple shares have often moved quite independently of the rest of the market, too. On Thursday, for example, the S. P. 500 was flat for the day despite the steep drop of Apple, which accounts for more than 3 percent of the index. The Dow Jones industrial average, in which I.B.M. has the greatest weight, at more than 11 percent, doesn’t include Apple at all, and it rose slightly for the day. On Wednesday, by contrast, both indexes rose, along with I.B.M. and Apple shares.
Why should the market’s one-day reaction to I.B.M.’s earnings have anything to do with market returns over the next five weeks? Mr. Hickey speculates that I.B.M., which provides sophisticated, integrated digital solutions to business problems, now derives revenue from many of the world’s big companies and accurately reflects the prospects of corporate America. “When I.B.M. is doing well, a lot of the corporations in America are doing well,” he says.
But it’s quite possible that the apparent connection between I.B.M.’s earnings and the overall market direction is nothing more than an anomaly, and may not continue.
That’s the assessment of Burton G. Malkiel, the Princeton economist and author of “A Random Walk Down Wall Street,” the investment book now in its 10th edition. He has found that, for the most part, the stock market does not follow predictable patterns.
“If it did,” Professor Malkiel says, “money managers would be able to beat the market regularly, but the vast majority of them can’t.”
Article source: http://www.nytimes.com/2013/01/27/your-money/apple-stock-isnt-a-bellwether-even-if-its-big.html?partner=rss&emc=rss
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