What the hell happened to Apple at Friday’s close?

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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13 Comments

  1. Fred Stein said:
    Thanks Robert Paul – concise and insightful.

    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.

    3
    February 27, 2021
    • Robert Paul Leitao said:
      Fred: I’d like to reiterate there’s nothing “wrong” with Apple. There are many factors at play in the market including the rising opportunity costs of investing in equites which changes the risk/reward equation. Apple remains in a class all its own. The company sources internally all of its capex needs, increases its dividend annually and Apple remains in the midst of a massive share repurchase program.

      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.

      1
      February 27, 2021
  2. Greg Lippert said:
    This is not the first – or last time – the market has been irrational. Longs have nothing to fear and IMO, it’s a buying opp.

    3
    February 27, 2021
  3. Jerry Doyle said:
    Reading the commentaries & listening to the “talking heads” after market close there seems a common thread to what all their concerns touch on. Connecting the dots along that thread has to do with reconciling what the Fed Chair is saying with what the market is seeing: INFLATION.

    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.

    1
    February 27, 2021
  4. bas flik said:
    one can assume markets are efficient. especially the market in apple. the outcome of the market process can turns against you but this does not mean the market is inefficient.

    0
    February 27, 2021
  5. Michael Goldfeder said:
    The market makers dropped the price of Apple dramatically at the close to either grab up some shares for themselves or help shorts cover. An example of why TC wants the stock in more hands who aren’t institutional investors. The market always tries to utilize various news events to explain these precipitous movements with an economic outlook. However, Jerome Powell already indicted he wasn’t concerned about inflation for quite some time.

    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.

    5
    February 27, 2021
    • Gregg Thurman said:
      My $.02.

      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).

      2
      February 27, 2021
  6. Gregg Thurman said:
    Fears of inflation, IMO, are overblown. The FED’s oft stated inflation goal is 2%. But that’s on an even keel. It’s going to take some time for the economy to make up for the past year’s downturn and even out inflation at 2% starting with March 2020.

    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.

    2
    February 27, 2021
  7. bas flik said:
    inefficiencies will quickly be arbitrated away. the concept of efficient markets is theoretical. all information known is discounted in the price. if you will find an inefficiency in the price of Apple you will quickly be a billionair. Markets are always right. More truth is hard to find. Not always nice if you are on the wrong side.

    0
    February 27, 2021
  8. Michael Goldfeder said:
    @Gregg Thurman: “The big boys are BUYERS, not sellers.” Exactly!

    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.

    1
    February 27, 2021
  9. Dan Pallotta said:
    Maybe this is cynical and sophomoric, but I have been in the game for a long time and have seen so many of these what-seem-to-me to be contrived emergencies, this time it being inflation, only to see the emergency vanish three weeks later—not to believe that there is some unspoken but understood strategy among people who manage big money that when things get to a peak and there’s no more money to be made, they will all dutifully start talking the same line about whatever new emergency it is someone has chosen in order to bring things down so that a money-making opportunity re-emerges. Like the lead cyclist or goose in a drafting formation, they cycle through being the leader of the new narrative. Again, maybe I’m being sophomoric, but I sure do see a pattern.

    2
    February 27, 2021

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