Can one bad apple, Apple Computer, spoil the whole stock market?
Many of us were warned, as young children, about how one bad apple can spoil the entire bunch. The metaphor was often used as part of an admonishment to avoid any “bad kid” who would have a “contaminating” influence on his or her circle of friends.
We have recently seen the Nasdaq Composite and Nasdaq 100 indices (NYSEARCA:QQQ) experience a bad day when the Dow and the S&P 500 (NYSEARCA:SPY) finish that same day with some nice advances. It has become more recently the case that Apple (Nasdaq:AAPL) gets blamed for dragging down the entire index on such days.
Even before the death of CEO Steve Jobs, Apple got some bad publicity when China-based Foxconn, the assembler of the iPhone (as well as phones from a number of other manufacturers) became the subject of a “sweatshop” scandal. With the release of the iPhone 5, Apple faced criticism for the phone’s flawed map application as well as a problem with the phone’s camera performance, known as “purple haze”. Despite Apple’s August victory against competitor Samsung in a patent infringement lawsuit, the United States Court of Appeals for the Federal Circuit dealt a blow to Apple in another patent suit on October 11, by overturning a temporary injunction banning the sale of Samsung’s Galaxy Nexus smart phone. Apple shares began their decline during that day’s session just before 11:00 – exactly the same time at which the Nasdaq Composite index headed south. In fact, by superimposing the AAPL chart for the past 180 days over the Nasdaq Composite chart, a striking correlation becomes apparent.
chart courtesy of StockCharts.com
With a market capitalization of over $588 billion and over 900 million outstanding shares, Apple’s average daily volume of over 15 million shares amounts to over $9.5 billion dollars per day being spent on Apple stock. In fact, Apple accounts for nearly twelve percent of the weight of the Nasdaq Composite, which is twice the rating of its nearest runner-up, Microsoft (Nasdaq:MSFT).
On May 2, Apple’s weight on the Nasdaq 100 Index was cut from 20.5 percent to 12.3 percent. Despite the adjustment, it was not until the holiday-dominated first week of July when we saw the Nasdaq 100 (NYSEARCA:QQQ) decline by 10 basis points (0.1 percent) while Apple (Nasdaq:aapl) gained 3.7 percent. Beyond its status as a component of the S&P 500, Apple’s weight on that index accounts for 4 percent. During the first quarter of 2012, Apple’s impact on the performance of the S&P 500 (NYSEARCA:SPY) exceeded its weight, with Apple bringing in 5.4 percent of the profits for that index.