Does Apple’s share price priced bode ill for stocks?

<p>Recent price moves in Apple’s share price could be deeply important for the future direction of the world’s most-traded stock indices, and overall market volatility […]</p>

Recent price moves in Apple’s share price could be deeply important for the future direction of the world’s most-traded stock indices, and overall market volatility in the coming months.

Since peaking in July, Apple’s share price has slid some 16%, this is significant since Apple is the world’s most valuable company. Some analysts calculate that every $1 fall in Apple’s share price triggers a 0.65% decline in the S&P 500.

The decline in Apple’s share price is also symbolic, this share price has risen some 800% since the start of the uptrend back in 2009, compared to a 210% rise for the S&P 500 overall. Part of Apple’s spectacular rise has been on the back of its large share buyback policy and its decision to start paying dividends, which made its stock even more attractive to hold.

However, now that China has started to slow down, which is a major market for Apple, the tech giant may have to scale back on its buy-backs and dividends and invest its cash pile in new products to try and impress in a tougher market place compared to recent years. This could pose an even greater challenge to Apple’s share price in the coming months.

In terms of the broader market impact of Apple’s decline, further weakness may weigh on the broader market in the medium term. Since the start of this year, the S&P 500 has been reliant on a handful of companies to eke out its current 4% gain. These include: Amazon, Walt Disney, Google and, of course, Apple.

The chart below shows Apple (white line), vs. the S&P 500 (orange), it also shows the performance of Walt Disney (purple) and Amazon (green). This chart has been normalised to show how these stocks move together along with the index. As you can see, the index has underperformed Apple, Walt Disney and Amazon, although it has remained fairly stable in recent months. Now that there are signs of weakness in Apple and Walt Disney, if Google and Amazon also start to falter then it would be bad news for the overall index.

Due to the importance of the S&P 500, a sharp decline in the index on the back of a further sell off in the price of Apple could trigger a wider bout of market volatility, so watch out where the tech giant’s share price goes next.

Figure 1:

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Source: City Index, Data: Bloomberg

 

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