Reposted with permission from the Apple-Share-Price channel on the Apple 3.0 Slack:
Philip Elmer-DeWitt: What the hell happened at the close? Any clues?
Alexander Parker: Yeah, I’m curious about these occasional dramatic plunges (and spikes too for that matter). Always eager to hear what veterans have to say about these events. The rise this morning was gratifying (~2.3% over a 35 minute period) but the drop this evening seemed like a straight line, was larger (2.6%), and took a third the time…
Robert Paul Leitao: In my brief reading, it looks like inflation fears spooked the market into the close. I’ll go back to a point I made earlier: As rates on virtually risk free instruments begin to rise, the opportunity costs of investing in equities also rise. There’s nothing “wrong” with Apple. It’s just no longer a momentum play (for now), there are no near-term catalysts for the stock (that are known at this time) ahead of March quarter results and it’s not an income stock. Great company, great long-term appreciation play, but not a COVID recovery play. Apple at times is an ATM for the market. With a market cap of over $2 trillion, it’s among the most liquid and easily tradable equities on Wall Street. Need cash for the glamour/momentum stock of the day? Sell Apple. But buy it back maybe later.
George Ewonus: Thanks, Robert. Makes sense.
Robert Paul Leitao: I’ve learned the hard way over the years the market is amoral, has no real conscience, and most equities are not rationally priced at any given moment. My accounts looked a lot “prettier” just a few weeks ago, but I’ve been on this roller coaster ride for far too many years and through far too many cycles to get off the ride. I’m hopeful Apple is repurchasing shares hand over fist at this time. Of course the scenery looks much more pleasant at the top, but these cycles help me appreciate the up cycles more than the down cycles are a cause for momentary distress.
My take: Smart. From the chart above, however, I can’t help wonder if it was a spooked market that dragged Apple down, or sales of Apple that dragged the rest of the market down?
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Market’s are NOT efficient, despite the theory of efficient markets.
Looking at AAPL as owning a piece of Apple, vs. AAPL as an artifact of the market:
The forward IRR is now 4%. EPS can be expected to grow 10% annually. Buybacks, increase future EPS. It is very tough to find better long-term risk/reward opportunities.
Because Apple doesn’t trade in a vacuum, market sentiment on any given day will influence the share price action. The anticipated $1.9 trillion stimulus package is at least partially priced in for many equities so it’s possible we will see, in general, some multiple compression on a market-wide basis. On any given day, sentiment may win the day, but long-term fundamentals do matter. In my view, Apple is very well positioned for the long-term. Headlines last maybe a day. Quality endures for the long-term.
The vaccine rollout is making very good progress. The economy is opening up very nicely. Humongous amounts of stimulus already is sloshing in the economy. Another 900B is flooding now. Soon to come is an additional $1.9T. Then after that package another wall of infrastructure stimulus. This is a tsunami of liquidity flaming the economic recovery fires higher. All this drives the economy’s growth wheels faster creating sparks that the market fear will set a fire call “inflation.” Evidence of such already abounds in segments of the economy. These stronger price growths demand higher bond yields, which we are seeing. This scenario is rattling the markets.
In summary, the markets no longer believe what Fed Chairman Powell is saying. Interest rate increases are coming. Concisely, the Fed’s messaging is not powerful enough.
While % rates are rising artificially as the Fed hasn’t increased them, this sharp sell off at the last minute before the close could be claimed as collateral damage from the air strikes on Syria, the reopening of the economy, J & J’s vaccine being approved but only 70% effective, rotation into value stocks and cyclicals, or the Lakers losing back to back games. It’s all market manipulation that constantly takes place throughout the ages. My $.02.
Bottom line for me is Apple just had a record quarter. Will have another one to follow. Is in the middle of a major upgrade to 5 G phones and looking like the leader once again in smartphones. Will raise their dividend, increase the buybacks by at least $65 billion, and based on the recent volume, have been buying up huge chunks of stock at these prices.
And a good $.02 at that. Trying to attribute daily moves to something that isn’t global in nature is a media game (stoked by trading desks).
As Powell has also stated easy monetary policy will exist through 2022 before the screws are tightened.
I think sellers on inflation fears are making a gift of those shares to the big boys.
Look at this weeks trading volume, it’s about 30% higher then the previous 2 weeks when AAPL was in free fall. The big boys are BUYERS, not sellers.
https://finance.yahoo.com/news/fed-chair-could-years-hit-000906173.html
He isn’t concerned and neither am I. IMO media comments to the contrary are 3 minutes of fame seeking.
After the record Q2 revenues and EPS are posted at the end of April, everyone will be saying: “Look at the record numbers Apple has been posting both in, and coming out of the pandemic.” The stock will suddenly pop and the best news will be that Apple retired a HUGE batch of shares during this artificial downdraft. Which in turn greatly benefits the long term shareholders of the stock.
I don’t think it’s sophomoric to suspect gaming the market happens. It’s pretty much a reality. But in the case of Apple, these games redound to the benefit of the long term AAPL holders, or have done since Apple started its buybacks.
On one level, it sucks. On another level, it’s water off a duck’s back.