Apple’s disappointing earnings matter to more than just the investors who hold its shares.
With the iPhone maker among just a handful of companies accounting for more than half of the US stock market’s gains this year, some fund managers and analysts are concerned that the long bull market, which has pushed the S&P 500 index up almost 50% in less than three years, is starting to wane.
They worry, among other things, that the stock market crash in China will cut into global growth; that a stronger dollar will erode into overseas profits for US companies; and that companies are trading at rich valuations after four years in which the S&P 500 hasn’t experienced a 10% decline — known as a correction on Wall Street.
Now, with lacklustre earnings results in technology companies, one of the market’s few bright spots this year, investors are concerned that a decline in shares of Apple, Microsoft, and IBM might foretell a wider pull back.
“The market is flashing a yellow light right now,” Bob Doll, a senior portfolio manager at Nuveen Asset Management said.
The S&P 500 is currently less than a percentage point away from an all-time closing record. But market internals — indicators professionals look at to determine the health of the market — look weak.
Fewer stocks are leading the rally while more are hitting their lowest prices in a year, Thomson Reuters data show.
For the year through to July 17, just five firms — Apple, Amazon.com, Google, Walt Disney, and Facebook — accounted for 61% of the year to date gain in the S&P 500, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
The spread between daily gainers and losers on the New York Stock Exchange on a 50-day average rolling basis has favoured decliners since June 9, and earlier this month became more skewed in favour of those falling than at any time since mid-2012.
Back then, amid fears of a global slowdown and a crisis among Spanish banks, the S&P 500 went through a 9.9% decline over two months. The recent pull back on the S&P, however, has been less than 4%.
A look at stocks hitting yearly highs and lows similarly offers little comfort. There are more NYSE stocks hitting 52-week lows than highs on a 50-day moving average than since December 2011 after worries about the eurozone’s deepening debt crisis brought the S&P 500 down 9.8% between October and November.
The declines, though close to 10%, do not fit the traditional definition of a correction. The red flags that go up when the market hits that number sometimes ignite herd selling.
The weakening internals look to some to be similar to late-1999 and 2007, both periods that preceded bear markets, when index averages motored higher even though fewer stocks were being carried along with the rest of the market.
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