Apple Inc. (AAPL) is arguably the stock market’s rock star.
Sky High Expectations
The company sells sleek devices to a cult-like consumer base and boasts the largest market value in the S&P 500 Index (SPX), at approximately $830 billion as of Monday’s open. For this reason, Apple risks dragging down the entire stock market if its iPhone 8 introduction fails to live up to expectations, several investors say in interviews with CNBC. The reason is this: if Apple’s touted introduction of the iphone 8 falls short of expectations, there is not enough other good and exciting news expected from Apple or from the market in general during the next few weeks to drive stocks, in the opinion of these investors cited by CNBC. (For more, see also: What to Expect From Apple’s Tuesday Event.)
If Apple’s presentation disappoints, “…there is a very strong potential here that Apple could take the whole market down,” Boris Schlossberg, managing director of foreign exchange strategy at BK asset management, told CNBC on Friday.
To be sure, a hugely successful debut of the iPhone 8 on Tuesday could do the opposite, boosting Apple’s shares and fueling a market rally.
But the event comes as Apple shares fell more than 3% last week, its worst week since mid-June. The Wall Street Journal published a report about “production glitches” with the iPhone 8, and several Wall Street analysts predicted shipping delays for the $1,000 smartphone, per another CNBC report. Gene Munster, managing partner at Loup Ventures and formerly a widely-followed Apple analyst at Piper Jaffray Cos. (PJC), told CNBC that Apple could fall 10% in the next one to three months. Munster says that Apple’s stock tends to have a “runup” before a product announcement, followed by a “tail-off.”
Apple as Bull Market Driver
As Apple’s market cap has soared in recent years, so has its influence on the readings registered by the major stock market indices. Apple currently accounts for nearly 4% of the value of the S&P 500, more than 12% of the Nasdaq 100 Index (NDX), and just over 5% of the Dow Jones Industrial Average (DJIA), according to SlickCharts.com. Apple’s influence goes way beyond even those numbers as it’s regarded as a bellwether of tech innovation, and of the health of tech stocks and the overall market by many investors.
The market cap of Apple’s stock was just $30 billion in March 2005. On its march to $830 billion, it hit interim peaks, before subsequent retreats, of $157 billion in December 2007, $567 billion in September 2012, and $717 billion in May 2015, per Macrotrends LLC. For example, it sank from $717 billion in May 2015 to $497 billion in May 2016, before beginning its climb to $830 billion.
Just as a rising Apple share price has had an outsized influence on propelling the major market indices upward, a drop in its price would drag these indices downward significantly. For example, if Gene Munster is correct in his prediction that Apple might fall 10% in the next three months, that alone would bring the Nasdaq 100 down by 1.2%, based on Apple’s 12% weight in that index. Worse yet, such a decline in Apple’s stock “could trigger a lot of momentum selling across the board,” BK Asset’s Schlossberg told CNBC.
Reasons For Optimism
Despite concerns about iPhone 8, many investors in Apple remain confident about the company’s long term prospects. Schlossberg is among them, indicating to CNBC that “Apple really does have a tremendous amount of assets under its umbrella.” Nonetheless, Schlossberg agrees that, in the short term, Apple might suffer a “severe correction” if the iPhone 8 fails to impress the market.