At first glance, there is actually no obvious connection between the corona pandemic, Donald Trump and Apple. Nevertheless, the share of the iPhone manufacturer was partly clearly influenced by news about the US President and his corona infection, says an Apple expert – and tries to explain.
?? Apple shares fell after Trump’s corona infection became known
?? Apple expert sees high correlation with S&P 500 in the short term
?? Baird strategist: Tech stocks are particularly vulnerable to selling out of nervousness
The AppleShare has proven to be a good investment so far in 2020: Since the beginning of the year, the share has climbed by around 70 percent (as of the closing price on October 12). Nevertheless, investors have had to accept setbacks time and again in recent months – sometimes for no apparent reason. Apple shares lost around the beginning of October after they became known Donald Trumps Corona-Infektion 3.2 percent on NASDAQ within a day – without any Apple-specific news. For comparison: the S&P 500 only fell by around 1.4 percent on the corresponding Friday.
Journalist Daniel Martins thinks he knows the explanation why Apple shares reacted so violently to the news that US President Trump has contracted COVID-19. Martins writes for the online news site “The Street”, co-founded by Jim Cramer, and almost exclusively deals with the tech company from Cupertino in his articles. According to his observations, what moves the market also moves Apple shares – especially in the short term. According to Martins, news like Trump’s corona disease, which could potentially have an impact on the entire economy, would also cause price fluctuations in Apple shares – even if they are not actually directly affected by the news. However, this is mainly the case in the short term. In the long term, Apple stock would still reflect the company’s fundamentals, the Apple connoisseur said. He therefore also recommends being patient when investing in Apple, as it is a stock to own, not trade. Investors benefit from the performance of the security in the long term. In the short term, however, Apple shares move in line with the broader market and can therefore occasionally see price falls for no good reason.
Correlation between Apple and S&P 500 is increasing
According to Daniel Martins, the correlation between Apple shares and the broad US market, which is represented by the S&P 500, has increased significantly, especially in the last three years. This shows a long-term view of the price movements of both values over a rolling 3-month period. While the value for the correlation between October 2013 and October 2014 was often 0.2 or lower and thus almost no lock step between the share of the iPhone manufacturer and the broad US index, the correlation value has been almost since October 2017, according to Martins consistently above the long-term average of 0.6. At the beginning of 2020, according to Martin’s presentation, it even approached the value of 1.0, which would represent a perfect correlation.
However, it is not at all surprising that the correlation between Apple stock and the broad US market represented by the S&P 500 has increased noticeably in recent years. Because according to a study by Oxford Economics, which is available to the news agency “Reuters”, the tech stocks Apple, Amazon, Microsoft, Alphabet and Facebook with their weighting meanwhile around 25 percent of the S&P 500. So the broad market consists to a large extent of nothing other than tech stocks – so it’s no wonder that there is a correlation.
Investment Strategist: Tech Stocks Vulnerable to Rally
The fact that Apple shares reacted to the news of Donald Trump’s corona infection with quite strong price drops and posted an even more significant minus than the S&P 500, has other reasons besides the correlation. Willie Delwiche, strategist at the US investment bank Baird, told Reuters that the illness of the US president – and above all its initially unclear course and the effects on the upcoming US election – a lot of uncertainty and nervousness brought back to the market. This ultimately manifested itself in the fact that overcrowded trades were somewhat dissolved. Delwiche explicitly names the tech stocks, which Apple also belongs to. Other investors are also of the opinion, according to “Reuters”, that tech stocks like Apple are most likely to be vulnerable if there is a sell-off in the market due to uncertainty – precisely because they would have been at the very top of the stock rally this year .net