Broadest Bull Market Rally Since 1990 Masked by Apple
The world’s most valuable company has surged 653 percent since March 9, 2009, accounting for 8 percent of the Standard & Poor’s 500 Index’s climb to 1,368.71 from 676.53, according to data compiled by Bloomberg. The impact is second only to Cisco Systems Inc. (CSCO) between 1998 and 2000, data compiled by Birinyi Associates Inc. show. At the same time, the S&P 500 has almost doubled since March 2009 even when Apple is excluded.
Apple’s ascent is distracting investors from the broadest stock market advance since at least 1990, according to Mike Holland, founder of New York-based Holland & Co., which oversees more than $4 billion. While bears argue that U.S. earnings are too reliant on the iPhone and iPad maker, bulls such as Holland say signs of a recovering economy are setting the stage for income growth and share increases in companies from Google (GOOG) Inc. to Exxon Mobil Corp. and JPMorgan Chase & Co.
“No doubt there’s an Apple effect, but the naysayers are exaggerating it,” Holland, who oversees more than $4 billion, said in an April 3 phone interview. “Companies have done extremely well, and yet the valuations have gone down because of all of the headlines.”
Of the 479 stocks that have been in the S&P 500 since March 2009, 458 have risen. A version of the benchmark gauge that eliminates rankings by market value is posting its biggest annualized return in a bull market in at least 22 years, while the Russell 2000 Index (RTY) and S&P MidCap 400 Index are approaching records. Gains have put the Dow Jones Industrial Average, which doesn’t include Apple, 11 percent away from its October 2007 all-time high, while the S&P 500 needs to climb 14 percent, data compiled by Bloomberg show.
Apple has done more than any other stock to push the S&P 500 up since the bull market began, data compiled by Bloomberg show. Cupertino, California-based Apple became the world’s most valuable company last quarter, topping Exxon Mobil with a market capitalization that has since approached $600 billion. Apple added more than three times as much as International Business Machines Corp. and General Electric Co., the next-biggest contributors.
Second to Cisco
The influence of Apple is second to Cisco’s in the history of bull markets since 1982, according to data compiled by Birinyi. The world’s biggest maker of computer-networking equipment accounted for 9.4 percent of the 60 percent gain in the S&P 500 between August 1998 and March 2000, the data show. Intel Corp. and Microsoft Corp. each accounted for almost 7 percent during that cycle, the data show.
Apple advanced 48 percent last quarter, the 11th-largest increase among the 500 constituents of the benchmark gauge for U.S. equities. While the 12 percent rise in the index shrinks to a 10.4 percent advance without Apple, that still would have been the best start to a year since 1998, data compiled by Bloomberg show.
“The rally has been much more than Apple,” said Howard Ward, a money manager at Gamco Investors Inc. in Rye, New York, who helps oversee $36 billion. “Apple no doubt has added some sparkle to the technology sector, but all market sectors have risen.” The rally since October “coincided with six months of better-than-expected economic data,” he said.
The S&P 500 declined 0.7 percent to 1,398.08 last week after the Federal Reserve signaled it may refrain from more stimulus and a Spanish bond auction exacerbated worries about the European debt crisis. Stocks lost 2.8 percent in the two trading sessions after an April 6 report showing the U.S. added 120,000 jobs in March, missing the 205,000 median forecast of economists surveyed by Bloomberg.
After a 0.7 percent advance yesterday, the S&P 500 was up 8.8 percent in 2012. The index gained 1 percent to 1,382 at 10:49 a.m. New York time today.
The index is still up 25 percent since Oct. 3 as the unemployment rate fell to 8.2 percent and reports on manufacturing and housing helped boost investor speculation that the economy will avoid a recession. The Citigroup Economic Surprise Index (CESIUSD), which shows whether U.S. data beat or fell short of forecasts, climbed from October through the end of 2011, peaking at 91.9 on Jan. 6, while fourth-quarter earnings for the S&P 500 exceeded estimates for a 12th straight period.
Apple’s contribution to the rally is even greater than it appears because it earned so much more than analysts were predicting, according to Douglas Kass, the money manager who recommended buying stocks when the market bottomed in March 2009. The company beat revenue forecasts by $7.3 billion, the most ever, when it reported quarterly results on Jan. 24. Net income more than doubled to $13.1 billion as Apple sold 37 million iPhones and posted $46.3 billion in sales. The total ranks among the highest quarterly profits on record.
“I’ve called this the NBA rally; it’s Nothing But Apple,” Kass, the Palm Beach, Florida-based founder of Seabreeze Partners Management Inc., said in an April 5 phone interview. “Without Apple, earnings performance would be tepid and the stock market performance, though still pretty good, would have been reduced,” he said. “Its dominance is extremely unusual.”
S&P 500 earnings for the three months ended Dec. 31 climbed 10 percent, data compiled by Bloomberg show. Without Apple the rate was 6.7 percent. Profits have risen for the past three years, and analysts project they’ll increase 8.3 percent in 2012 and 13 percent in 2013, Bloomberg data show. The price-earnings ratio for the S&P 500 fell 8.9 percent last year, and even after the multiple rose to 14.2 yesterday, it’s still 14 percent below its average since 1954, data show.
Exxon Mobil, based in Irving, Texas, trades at 9.8 times reported earnings, compared with 12.1 a year earlier, and New York-based JPMorgan has a price-earnings ratio of 9.5, or 33 percent below the S&P 500. While Google’s multiple is 21, that’s still 7.9 percent below the average since the bull market started in March 2009.
Alcoa Inc. this week was the first Dow Jones Industrial Average company to report first-quarter results. The largest U.S. aluminum producer reported an unexpected profit, sending the shares up 6.2 percent yesterday, the most since Jan. 3.
Jonathan Golub, the UBS AG strategist who argued in February that record Apple profits obfuscated “that the underlying earnings trend is really weak,” now says worse-than- expected energy-company earnings made income seem lower than it really was. While Apple was “masking the slowness,” the second half of earnings season made up for the weaker performance of energy companies, he said. Golub projects profit will rise without a repeat of Apple’s first quarter, boosting the S&P 500.
“It’s absolutely not a couple of individual names driving the rally,” Golub, the New York-based chief market strategist at UBS, said in an April 3 phone interview. “That should really be comforting to individual investors and investors in general because it means if you have a portfolio, by and large most companies are doing well, and so are you.”
Indicators used by price and volume chart analysts show the breadth of the rally. More than 57 percent of companies listed on the New York Stock Exchange are trading above their 200-day average levels. That compares with 6.8 percent on Oct. 3, when the S&P 500 sank to its low for 2011.
The rally has also been widespread based on the S&P 500 Equal-Weighted Index (SPW)’s annualized return. The index, which gives each company the same contribution regardless of size, returned 34 percent on an annualized basis since March 2009, 5.8 percentage points more than the S&P 500. That’s the best return and best relative performance for a bull market since 1990, data compiled by Bloomberg show.
Apple is “obviously a really big stock, no kidding,” Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC, said in an April 4 phone interview. “But we’re seeing pretty good profit growth in most of the companies that we look at. The bull market would be happening regardless.”
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