Why Are the Markets Ignoring Apple’s Fall?
Apple’s (NASDAQ:AAPL) stock dropped 2.36 percent on Friday to close at $439.85, a whole 12.03 percent below the level it was at when the week began. However, the overall bull market kept its momentum, with the Standard & Poor’s 500 index closing above 1,500 for the first time since December 2007 and the Dow Jones industrial average ending fewer than 30 points from breaking 14,000.
The broader Wilshire 5000 index, which tracks all stocks available for trade, closed just below a record high it had set on Thursday and marked a $10 trillion stock value gain in the bull market.
So how is it that while Apple, now the second most valuable company in the U.S., keeps declining, the broader markets seem unaffected? According to Barron’s Randall W. Forsyth, the easiest explanation comes from the “vantage point of an Apple shareholder.”
While those investors in the company who bought in when the shares were near their peak of $702.10 in September are undoubtedly facing losses, the decline in Apple’s stock price does not affect the company’s overall financial viability at all, Forsyth wrote.
“Apple’s earnings growth may be less heady than previously, but its balance sheet remains rock-solid,” he explained. “It still has some $137 billion of cash and marketable securities and generates significant free cash flow. In other words, it is totally liquid and its operations are completely unaffected by the fall in the stock price.”
In addition, while the Apple stock’s paper losses are staggering, the equity value is only back to where it was a year ago. “Apple acolytes may be experiencing some existential angst, but in the real world, you can’t find a parking space at the local Apple store,” he said.
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