Since Apple Inc on Feb 29 became only the sixth company in US history to top $500bn (€400bn) in market capitalisation, trading has become more volatile, indicating that investors are tracking headlines and looking for quick gains.
Apple has gained 32% since the beginning of the year, outstripping its 2011 gains. It accounts for more than 4% of the weight of the S&P 500 index, the kind of standing that has caused its moves to dictate market direction on a daily basis.
That trend is causing consternation in the market. They note that other firms that became members of the elite $500bn club could not sustain their standing and weighed on the entire market as they fell.
For long-term investors, the stock of the iPad and iPod maker has been a winner, the ultimate in buying and holding. From a short-term basis, buyers have become more fickle.
“Apple has become a favourite daytime trading stock for short-term traders. It’s one of the rare stocks that have momentum followers and that move on headlines that are not related to earnings,” said David Rolfe, chief investment officer at Wedgewood Partners in St Louis, Missouri. The firm manages $1.5bn in assets and owns Apple shares.
Intraday swings in Apple are at the most volatile levels since October last year. The swings have averaged around $12 a day for the past two weeks, compared with about $14 in October.
On Monday, Apple shares plunged 3.1% in 10 minutes, which pushed the firm’s market cap below that $500bn threshold. Trading volume spiked during the drop to 3.8 million shares, the heaviest 10 minutes of turnover since Feb 15, when the stock’s shift in direction pulled the market with it.
Apple shares typically run up in the days ahead of a product launch, but the shares have gained sharply this year, in anticipation of a new generation of its iPad.
The new iPad 3 — expected to offer a better screen, camera, processor and 4G wireless capabilities for the same price — is to be unveiled today. Any major disappointment may weigh on the shares.
For Apple, a share price of $537.54 marks the level that pushes it above a market cap of $500bn.
There are concerns that Apple will start to hurt the overall market should the euphoric trading that pushed it to a record high of $548.21 on Mar 1 subside.
“We used to say ‘if GE goes, then the whole country goes.’ Now we say ‘if Apple goes, the whole country goes,’” Rolfe said.
Apple joins only a handful of companies — Microsoft, Exxon Mobil Corp, Cisco, Intel and General Electric — that have crossed the $500bn mark. None of the others was able to sustain that value.
As Apple shares dipped on Monday, activity in the options market picked up, ranging from investors hedging their long positions in the stock to betting on a rebound.
Despite the high price, Apple looks like a value stock. It trades at 15 times earnings, close to the 14 earnings multiple of the broad S&P 500 index, even though its earnings per share grew nearly 83% last year, nearly four times that of the broad index.
In February, Apple shares have moved than 1% up or down on a single day in 12 sessions.