Apple is down 3.5 percent today, and has dropped 14 percent from its recent high of about $133 in late April (it was around $132 on July 20th). Despite this decline, the Nasdaq Composite has remained relatively strong. Interestingly, the Dow Jones Industrial Average and the S&P 500 charts look much more similar to Apple’s chart, than does the chart of the Nasdaq (even though Apple is obviously a tech company and the Nasdaq is very tech-heavy).
With Apple rolling over, what should we expect from the overall market?
This is an interesting and complicated question – normally a company as large and high-profile as Apple, with its recent decline, would have driven the Nasdaq down, perhaps by a larger percentage than Apple has fallen. My take is that the story of the market should and will be about market leadership, and Apple is certainly a market leader. The fact that the Nasdaq has not yet reacted much to Apple’s decline, is both a testament to the power of the tech sector, and also a warning sign that investors are stubbornly holding out hope that leadership can disappear and the market can still advance. This rarely holds for long.
Apple is certainly not the only significant stock, and not the only significant tech stock, to falter. As we approach September (next month) and the likely first interest rate raise by the Fed, investors will need to weigh the importance of Apple’s decline in the context of the overall strength of the Nasdaq and the overall market. Will Apple rebound, taking the market to new, all-time highs yet again, or will Apple’s decline be a precursor to the long awaited overall market correction? I don’t think we will have to wait long for the answer.