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The Market's Doing Just Fine Without Apple

The Market's Doing Just Fine Without Apple

Photograph by Spencer Platt/Getty Images

For the past several months the stock market has been coasting, having managed to decouple from Apple’s 35 percent plunge since the world’s erstwhile most valuable company hit its all-time high in September. In other words, the Standard & Poor’s 500 benchmark, which is overweight Apple (AAPL), has outpaced the iPhone maker by 40 percentage points—20 points just this year. So much for physics.

Apple, which nearly went bankrupt 16 years ago, last week ceded the mantle of world’s most valuable company to ExxonMobil (XOM) after an earnings report that fessed up to slowing growth. True, Apple has traversed more than a decade of steep dives, a period in which it slurped the old Wintel milkshake and used the calories to roundly outperform the stock market. But the reversal of trajectories hasn’t been this sharp in recent memory.

In a matter of hours, Apple hemorrhaged $52 billion in market capitalization—equivalent to a Time Warner (TWX), and more than the value of Morgan Stanley (MS) or Target (TGT). (Insert tweetable developing-market GNP comparisons here).

Wall Street is busy trying to process this divergence; one analyst has changed his price target on Apple no less than seven times in the past 12 months (with one twice-in-four-days episode just last week). Meanwhile, the market, which is within points of its all-time high, chugs along. The S&P 500 is up 6 percent for 2013, and less than 4 percent from its record.

“Much too much was always made about the overall impact of Apple,” says James Paulsen of Wells Capital Management. “This rally is based more on the strength of the overall consumer, a revival in U.S. manufacturing, an improved housing market and corporate credit, and a reviving China than it has ever been about Apple.”

Standard & Poor’s (MHP) data whiz Howard Silverblatt crunched some surprising numbers on Cupertino’s correlation with the broader market. Over the two years into Jan. 25, if you took the S&P 500 and S&P 500 Information Tech group and stripped it of Apple, both would have lagged the traditional Apple-containing versions. But Silverblatt found that the reverse has been the case since the election, since a year earlier, since December 2011, and, for just the S&P 500, ever since that benchmark peaked in October 2007.

“The conventional wisdom on Apple has to some degree been proved wrong,” Silverblatt says. “They did well when the rest of technology did not. Now it’s the other way around.” Even so, he says, modern-day Apple and its hundreds of billions of market value—plus its $135 billion cash hoard—is widely viewed as critical to the market’s fortunes as “IBM (IBM) was in 1982, when something called the personal computer was going to take over the world.”

One Street suit is sticking out his neck that the fortunes of the market and Apple will again converge. Oppenheimer (OPY) technical analyst Carter Worth is telling clients to go short the S&P 500 and long Apple, pointing out that the market’s two-month rally would, at this pace, annualize to an unprecedented 65 percent gain. He calls that an “unsustainable rate of ascent.” Of course, it’s entirely possible—probable even—that Apple would fall in lockstep with a market correction.

Pity beleaguered fund managers. They chased Apple up to goose their returns, and must now scramble to figure if, when, and how to break that codependency.

Farzad is a Bloomberg Businessweek contributor. Follow him on Twitter @robenfarzad.

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