Why Apple Stock Has Been Taking a Beating

  • Share
  • Read Later
Aly Song / Reuters

Apple has taken a beating over the last five trading sessions, losing nearly 9% of its value – the worst performance since the fall.

Profit-taking is the reason most people mention. But you have to ask: Why now? Last week, Apple’s weakness was in synch with the rest of the market when the Dow Jones Industrial Average slumped 1.6% and the S&P 500 dipped 2%.  Bad news from Spain and China weighed on stock prices as did weakness in bank earnings.

But on Monday, the Dow rebounded modestly 0.56%; Apple failed to follow suit, dropping 4%.

(MOREApple Stock: Too Much of a Good Thing?)

I think of the market as a moody soul that acts as much on whim as on facts. For a long time, the market liked Apple so much that it added $100 billion in value to the company in just 28 days, the Wall Street Journal reported. The past five days have wiped out about half of that gain – or the value of Boeing. Until now, Apple lived in a Panglossian world: It could do no wrong, hurtling 50% higher in the first quarter of 2012. The rally also distorted other indexes, accounting for more than 11% of the gains in the S&P500 and Nasdaq stock market.

So now Apple’s woes are everyone’s woes, a problem I wrote about earlier this month.

On Monday the S&P500 slipped modestly, 0.05%. Without Apple, it would have been up 0.14%, quite a swing and the biggest negative impact on the index ever, reports Howard Silverblatt, senior index analyst at S&P. Volume was big – 37.5 million shares, up from the three-month average of 22 million shares. That makes Silverblatt believe the motive was profit-taking. Which gets us back to the question: Why now?

One piece in the puzzle, possibly: On Friday, after the market close, the Nasdaq OMX Group announced that it was replacing  First Solar  with Texas Instruments in its Nasdaq-100 Index, the top 100 companies on the Nasdaq. First Solar is a tiny energy company with a stock market value of just $1.7 billion and no longer meets the requirements for membership in the elite Nasdaq-100; Texas Instruments is worth nearly $37 billion. In a note to clients, Stifel Nicolaus managing director David Lutz says the swap in the index could have a ripple effect on the larger companies that will have to make room for the new addition. In other words, investment managers running funds based on the Nasdaq 100 Index will be more likely to sell Apple or Google (down nearly 3% Monday) to accommodate Texas Instruments.

(MORE: How Apple’s Steve Jobs and Book Publishers Cost Consumers Millions)

Lutz mentions some other problems that Apple investors are chewing on:  rumors about an “iPad mini” that costs only $250 and would cannibalize sales of higher margin products;  concerns that Apple may not have added as many new subscribers as expected on carriers like AT&T; and worries about regulatory issues and labor practices in China.

In other words, Mr. Market decided to swap its best-of-all-worlds attitude for a cap full of worry.

Despite the downturn, Apple at $580 is still up 43% for the year, the 11th best  in the S&P 500, Silverblatt says in an email. Not the best of all possible worlds, but not bad.

MORE: What Would Steve Jobs Do?

0 comments
Sort: Newest | Oldest