Apple Does All the Heavy Lifting?

This week’s Barron’s Technology Trader column made an interesting point about Apple (AAPL). The focus of the article was the extent to which Apple’s results, by virtue of the company’s massive market cap, have contributed to the top down results of the S&P 500.

Per the article, in the 2011 Q4 earnings for the index were up 13% but excluding Apple they were only up 10%. Another nugget; S&P earnings had an average beat of expectations of 1.8% but without Apple there was an average miss of 1.4% of estimates.

This sort of thing represents a narrowing of market leadership which has happened plenty of times in past market cycles and typically occurs later in the cycle meaning this is an indication of a decline of some sort coming soon (maybe a bear market?). Of course there are always things to indicate the market is going lower just as there are always things to indicate the market is going higher. For people who make active decisions the task becomes weighing between the two and also deciding which things to give more credence to.

Narrowing leadership is one that I think is important but I do not think by itself implies imminent decline. My base case for 2012 was a very large, fast rally that would then mostly retreat leaving us with a small gain (hopefully) for the year. So far this base case is not wrong and the narrow leadership issue aside lays out a cyclical argument for 2013 being a down year; four years with out a down year for the S&P followed by a down year in 2013 (2012 was a push?). There is enough precedent for this for me to find it compelling, I realize not everyone does.

Now adding in the narrow leadership which can take months to matter and I think my scenario of a peak sometime in the middle of the year followed by a decline that starts thereafter and carries over into 2013 such that next year finishes in the red seems to have a high probability compared to many other outcomes. Again this conclusion is based on my weighing of various things which lead me to the 2012 scenario which for now is still alive.

In terms of portfolio implications, if you apply this type of process to your portfolio then you probably want to stick with it until it starts to prove wrong. My thesis is not wrong…yet.

About Roger Nusbaum 169 Articles

Roger Nusbaum is an Arizona-based financial advisor who builds and manages client portfolios using a mix of individual stocks and ETFs. Roger writes a popular blog, which focuses on risk management, foreign stocks, exchange traded funds, options etc.

Roger has been recognized by many in the investment management industry for his expertise in portfolio management. Roger has been regularly interviewed by the financial press, trade journals, and television news shows. He has also had numerous technical articles published and has been quoted in a number of professional trade journals, newspapers, and consumer finance magazines. He appears frequently on CNBC Asia as a market commentator.

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