Approaching the Cliff
Apple stock dropped over 4% last Monday as euphoria for it continued to wane. Somehow people think a winning stock will just keep on growing “to the moon.” When Apple’s market capitalization starts to approach the all-time record held by Microsoft, we have to step back to evaluate what’s going on. Microsoft’s record, by the way, was set just before the 2000 crash. Could Apple be telling us that stocks might be a bit pricey at these levels?
As a result of Apple’s slide with more than a 20% influence to the NASDAQ index, the index fell 0.75% for that day. The S&P 500 Index with a 4% Apple influence was flat, but the Dow (which does not contain Apple) gained 0.56%—supposedly encouraged by strong retail sales numbers for March. Meanwhile, Spanish 10-year treasuries again moved above the critical 6% level re-igniting euro-collapse fears. Overall, last Monday’s price action could be summed up as a day overshadowed by the decline of one stock.
Okay, forgive me, Tuesday and not Monday was the last day for 2011 IRA deposits. What caused my confusion? I forgot (actually never heard of) “Emancipation Day.” Silly me. (Note this is not the day the Emancipation Proclamation was made by Lincoln which purported to free slaves in the south.) Because of a law passed in 2005, the District of Columbia effectively puts this non-holiday in our face to further confuse the last day for filing income taxes by placing it on a sporadic schedule.
On Tuesday Apple recovered Monday’s big loss and a bit more. Spanish bonds were seen as slightly less toxic after some strong short-term bond sales, making Tuesday a bit of a “risk-on” party. Goldman Sachs reported a big revenue decline without consequence in its price. Other zombie banks also enjoyed an up day as Coca-Cola posted a strong report but after the bell top-heavy IBM’s report was a bit disappointing. Housing news remained dismal.
Wednesday was a partial give-back day as Tuesday’s “hope” again turned to today’s sober reality. IBM dragged down the indices and the zombie banks retreated somewhat. Apple was flat.
Thursday’s Spanish bond auction was sort of a non-event as the demand was sufficient at an interest rate just slightly lower than the market and below the red-flag 6% value (but not much). The relief from uncertainty and possible catastrophe was short-lived though because shortly thereafter, market rates for both Spanish and Italian bonds pressed sharply upward on rumored concern over a French downgrade. More pig lipstick came in for Morgan Stanley and Bank of America, each which reported significantly lower revenue than a year ago but spun the numbers as a net positive. The lipstick was even applied to the jobless claims with the prior-month revisions up enough to make the current-month rise into a decline.
As the Dow index breached the 13000 level, NASDAQ defended 3000, S&P 500 Index closed under its 50-day moving average, Apple fell below 600 while IBM dropped below 200 (but just barely). Early in the day, zombie bank stocks provided support for the index but that support faded. The reported decline in existing home sales and European financial woes weighed on sentiment. That IBM thing looks suspicious to me of the the company supporting the bloated price with stock buybacks. That’s easy to do in a low interest rate environment and with nearly a billion dollars coming soon for the sale of Retail Store Systems to Toshiba. Of course, this cannot be done indefinitely, and if they are doing it at these levels, they will likely be taking a beating in the longer term. But that’s okay as long as the execs get to cash in on their fat options before the stock follows other technology stocks into the abyss.
Friday was all about a nice revenue story from Microsoft that moved the Dow above 13000, kept the NASDAQ ever so closely above 3000 and left the S&P 500 Index just below that key 50-day moving average. Apple was still sliding, while IBM gained a few cents but not enough to regain the 200 mark. Spanish and Italian bond rates again rose as socialists moved closer to grabbing power in France. Volume was fairly respectable—even if the mixed price movement lacked conviction.
Overall, we saw a modestly positive week with sentiment turning more bullish. It looks like the Federal Reserve speech blitzkrieg of last week was curtailed. Perhaps they realized they were overdoing it. Next Tuesday and Wednesday the FOMC will meet again. Expect only platitudes and no action from the politburo.
Today looks strongly negative with political uncertainty and economic despair rocking Europe.
Filed under: Investment
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