The Apple Influence On Index Futures

In the last 18 years, one company has not only revolutionized how we buy, store and listen to music but has also been one of the most innovative in showing us new ways we communicate and interact with our cell phones. And talk about customer loyalty? There are only a handful of companies throughout history that can claim such fierce devotion to their products. We are, of course, referring to Apple Corporation.

So why am I writing about Apple in an article dedicated to futures trading? To some of you, it may be already evident that Apple influences the movement of not only the Nasdaq but the broader market in general, and for the rest of you, this piece may elucidate you into to the Why of this phenomenon.

As I write this article, news has come across the tape that Apple Corporation is guiding their earnings lower for the first quarter of  2019. They’re citing the shortfall due to the slowing economy in China. If you’re wondering how the Nasdaq futures are reacting: the chart below answers that question.

(Click on image to enlarge)

Nasdaq futures chart showing drop in Apple stock

To understand this reaction, let’s start with the basics on how the stock indexes are constructed. The four major stock indexes are the Nasdaq 100, S&P 500, Dow Jones Industrial Average and the Russell 2,000 small cap Index. Coincidentally, Apple is a big component of the first three of these indexes. 

Indexes are the aggregation of all the stocks that are included in an index. These stocks are then added together based on their weighting and divided by a specific diviser to end up with a number (the Index price). So as an example, the Nasdaq 100 Index is taking the 100 largest companies in the Nasdaq market to assemble this particular Index. Most of the major equity indexes are cap weighted with the only exception being the Dow Jones Industrial average, which is price weighted. The Nasdaq, for example, is a Cap weighted index. Therefore, the bigger the stock’s market capitalization, the bigger the influence that stock will have on the price movement of its corresponding index. When referring to the market cap of a company this is simply the price of the stock multiplied by the shares outstanding. As an example of market capitalization, let’s say a company has 100 million shares outstanding and they’re currently priced at $10.00 per share. The stock’s market cap is 1 billion.

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