How About Them AAPL’s?

Twas two weeks before Christmas, and all through Wall Street,

The algos were humming, “Buy Apple, toot-sweet”

We saw a stunning rally into Friday’s close, largely propelled by the continuing run in Apple (AAPL). Note the move in the last hour of the day, which interestingly has been dwarfed by this morning’s gyrations:

AAPL 2-Day Chart, 1-Minute Bars, with SPY (blue) and QQQ (purple)

(Click on image to enlarge)

Source: Interactive Brokers

With the stock approaching a $3 trillion market capitalization, we are amidst one of the most epic year-end ramps that I can remember.   I will not dispute that AAPL warrants a premium valuation. It is the most profitable company, and hence the largest component in major market-capitalization-weighted indices like the S&P 500 (SPX) and NASDAQ 100 (NDX), where it comprises 7% and 12.5% of the index, respectively. Yet I do question why investors believe that the company is 20% more valuable today than it was earlier this month, as the following graph shows:

AAPL 1-Month Chart, 1-Hour Bars, with SPY (purple) and QQQ (blue)

(Click on image to enlarge)

Source: Interactive Brokers

I scanned the recent headlines to see which major stories might have pushed the stock higher.The most notable piece of news was after the close on December 1^st when there were reports that AAPL had told its suppliers that iPhone demand had slowed.The stock gapped 4% lower when it opened the next morning, then resumed its advance shortly thereafter. One could thus assert that investors considered that news and almost immediately decided it was not a significant impediment to the stock’s momentum. Perhaps more significant was a story that broke on November 18^th, saying that AAPL is accelerating its efforts to develop a fully autonomous vehicle. That story built on the November 5^th’s news that AAPL hired Tesla’s (TSLA) autopilot software director, and traders appeared to ignore December 8^th’s news that three key engineers for AAPL’s car project left for startups.

It is entirely possible that we are seeing the perfect storm for AAPL bulls into year-end.The obvious consideration is that institutional investors are plowing into AAPL in a FOMO-driven frenzy.What institutional fund manager would want to appear underinvested in a phenomenally performing stock that has the highest weight in most passive portfolios? But what if we can also append the market multiple for electric vehicle manufacturers to an automotive division that barely exists?It’s not as though the lack of vehicle production from Rivian (RIVN) or Lucid (LCID) are negatively impacting those stocks, not to mention the fact that TSLA’s market cap is greater than most of the rest of the legacy auto industry at this point. 

Earlier this month, we noted how the rises in major indices were obscuring broader market malaise behind the scenes. Friday’s fresh SPX record high was once again accompanied by an advance/decline line that failed to reach its prior highs. This is a sign of narrowing leadership that can be obscured by the outperformance of market-leading stocks. When the biggest stock in the index is also its stellar performer, it can hide a considerable amount of underperformance amidst stocks outside the index or even amongst the smaller stocks within it. As of now, we are seeing a pause in AAPL’s march to a $3 trillion valuation, but it is entirely possible that Santa – or Fed Chair Powell — could bring that in his stocking.