Apple (AAPL) Inc.’s slump and forecasts from Intel Corp. (INTC) and Qualcomm Inc. (QCOM) that trailed analyst estimates are driving risk perceptions for technology shares to a one-year high versus the Standard & Poor’s 500 Index.
The Chicago Board Options Exchange NDX Volatility Index, which tracks equity derivatives on the Nasdaq-100 Index, is 16 percent higher than the S&P 500 options gauge known as the VIX, the biggest premium since March 2011, according to data compiled by Bloomberg. The Nasdaq measure has retreated 3.9 percent from the 11-year high reached on April 2, while Apple lost 9.9 percent over the past nine sessions.
Investors are anticipating larger swings in CBOE’s NDX Volatility Index as Apple, which reports quarterly earnings tomorrow, declined from an all-time high while Intel and Qualcomm missed Wall Street estimates. The results increased concern about the industry after computer and software stocks helped lead the S&P 500 to its biggest first-quarter rally since 1998, according to John Farrall of PNC Wealth Management.
“It’s about Apple and some earnings misses and concerns in the technology sector,” Farrall, who helps oversee about $110 billion as director of derivatives strategy at PNC in Cleveland, said in an April 20 phone interview. “That has gotten people more worried about tech relative to the rest of the market.”
Companies in the S&P 500 information-technology gauge posted the only decline among 10 industry groups last week, falling 1.5 percent, while the full index (VXN) rose 0.6 percent. Qualcomm, the largest maker of mobile-phone semiconductors, had the third-biggest drop among computer shares in the index after the San Diego, California-based company’s forecasts missed some analysts’ estimates.
Declines in technology stocks pushed the Nasdaq-100 volatility index, known by its ticker symbol VXN, up 27 percent since its March 26 low to 20.17 on April 20. The VIX advanced 22 percent to 17.44 during that time. The ratio of the two values was 12 percent above the average for the past year on April 20, data compiled by Bloomberg show.
Apple’s implied volatility, the key gauge of options prices, for three-month contracts closest to the current stock price had the second-biggest increase among S&P 500 stocks, adding 24 percent since March 26.
Bets on future price swings in Apple rose 70 percent to 38.35 on April 20 from a record low of 22.52 on Jan. 26, data compiled by Bloomberg show. The stock, which makes up almost one-fifth of the Nasdaq-100’s value and 4.3 percent of the S&P 500, rallied 29 percent during the period. It fell to $572.98 on April 20 after reaching a record high of $636.23 on April 9.
“It’s a troubling sign,” Brian Bier, head of equity derivatives sales and trading at Macro Risk Advisors LLC, said in an April 20 interview in New York. “The higher the stock is going, the bigger a correction the market is expecting. Everyone is talking about when Apple is going to crack. That’s driving the VXN up,” he said.
International Business Machines Corp. (IBM) and Intel posted the slowest sales growth in more than two years last quarter as the slump in Europe weighed on orders. Intel also forecast second- quarter gross margin that was lower than the average analyst prediction as spending on a new production technique erodes profitability.
Intel sales rose 0.5 percent to $12.9 billion last quarter, while revenue for IBM, which isn’t in the Nasdaq-100, climbed 0.3 percent to $24.7 billion. That was the smallest increase for either company since the third quarter of 2009, when the U.S. economy was just emerging from recession. Intel is the world’s largest semiconductor maker, while IBM is the biggest computer- services provider.
Qualcomm declined the most in eight months on April 19, dropping 6.6 percent, after its third-quarter forecasts fell short of some analysts’ estimates amid increased spending to bolster chip output.
Apple’s weighting in the Nasdaq-100 Index has increased to 18.2 percent from 11.9 percent on May 20, according to data compiled by Bloomberg. Nasdaq OMX Group Inc. reduced its proportion last year after it climbed as high as 21.3 percent, the data show.
“People are worried about the concentration within the index,” Andrew Greeley, a senior managing director at Stamford, Connecticut-based Acorn Derivatives Management Corp., which manages over $500 million in volatility assets, said in an April 20 interview. “That is helping the premium to go higher.”
Nasdaq OMX imposes a 24 percent limit for any Nasdaq-100 stock, along with a 48 percent restriction for all companies with at least a 4.5 percent weight. Microsoft Corp., Google Inc. (GOOG), Oracle Corp. (ORCL) and Intel have the largest weights after Apple’s, and the five amounted to 42 percent of the index’s value on April 20.
The exchange operator can also redo weightings should it become “necessary to maintain the integrity of the index,” according to the Nasdaq OMX’s website.
Technology stocks, which account for more of the U.S. market (SPXL1) than any other group, will prove resilient as the use of computing technology and reliance on communication networks increases, Oakbrook Investments’s Peter Jankovskis said.
“I’m not so sure there is a tremendous disenchantment with tech shares,” Jankovskis, who helps manage about $2.9 billion at Oakbrook in Lisle, Illinois, said in an April 20 telephone interview. “A lot of what’s being pointed to as weakness in the tech sector may simply be the fact that Apple’s gone through a bit of a rough patch. In terms of the direction that the world is evolving, technology becomes ever more important.”
Microsoft (MSFT), the world’s largest software maker, reported fiscal third-quarter profit that topped estimates on better- than-expected sales of software for businesses. The stock surged 4.6 percent, the most in three months, on April 20 as the Redmond, Washington-based company said it was helped by corporate purchases of Office productivity programs and Windows 7 operating systems.
S&P 500 technology companies trade at 15.5 times reported earnings, 9.6 percent more than the overall equity index. While computer makers and software firms are more expensive than the broader equity market, the stocks are trading at half the average since 1993 and remain below the 81.4 price-earnings multiple reached in 2002.
VXN Versus VIX
The VXN rose 12 percent in the last two weeks, while the VIX added 4.4 percent. The technology volatility gauge is 4.1 percent above its average since the end of the year. In Europe, the VStoxx Index (V2X), a measure of Euro Stoxx 50 Index option prices, dropped 11 percent to 26.23 last week after four consecutive weekly gains. It advanced 9.8 percent to 28.81 at 10:19 a.m. in Frankfurt today.
“People are driving up the volatility of Apple and other technology stocks as there’s more uncertainty in this earnings cycle,” Joshua Parker, who oversees about $400 million in options and stocks at Gargoyle Asset Management LLC in Englewood, New Jersey, said in an April 20 phone interview. “The less diversified an index becomes, the more volatile it becomes, and this is what is happening to the Nasdaq-100 as Apple becomes a greater and greater percentage.”