Brian Gilmartin | Sep 04, 2015 01:09PM ET
Maybe a better title for this post would be, “Why Apple’s Relative Strength is Key to this Market" or “Could a Fed Policy Change Herald New Stock Market Leadership?”
In 2011 and 2012, the only two stocks you really needed to own to show decent performance in a client account was Apple (NASDAQ:AAPL) and International Business Machines (NYSE:IBM). Apple peaked out in September, 2012 and managed to correct 50% while IBM topped out between late 2012 and early 2013 and the stock hasn’t seen $215 since.
2013 was a great year for the S&P 500 in general as the benchmark index rose 32%, with Apple and IBM notably under-performing on the year.
The two market leadership “groups” the last 2 years -- Apple and biotech -- are being watched closely as both Apple and the (NASDAQ:BIB) have gotten pounded in this correction. Apple is down from its peaks in February ’15 and July ’15 near $133. BIB, which is the “ultra” biotech ETF, (no positions and never owned BIB) is down 25% in the last 30 days and 4.5% in the last 5 trading days. The IBB or the regular, unlevered biotech ETF was down 3.5% in the past week (as of Thursday, 9/3/15), and is down 12% in the past 30 days.
Looking back to the 1980’s and 1990’s
These are “off-the-cuff” memories of significant market leadership changes over the last 25–30 years, that I can remember.
The point being that when the S&P 500 bottoms and starts to work higher, the significant tell will be how Apple and biotech act as the S&P 500 makes new highs:
A fed rate hike could signal a new era. I think the overall S&P 500 remains in a secular bull market thanks to Financials and Technology, the two sectors decimated between 2000–2009, which are still the largest weights in the S&P 500 by market cap, offering much better relative value today. Frankly, there is very little about the S&P 500 that worries me outside of biotech, given what appears to be reasonable valuation, as was detailed here .
For clients, my expected SP 500 return guidance for 2015 was flat to +10%. I still think that is a viable forecast.
I’ve been guiding clients to expect a “return to global growth” theme for years and that has been wrong. I’ve also guided clients to expect higher interest rates and that has been wrong. Maybe investors are moving closer to those investment scenarios.
Conclusion: Looking at the charts, biotech – as a group – doesn’t look that great. The 50-week moving average for the IBB is 211.68. On the daily chart, the IBB is struggling to hold its 200-day moving average. Right now, I have more faith that Apple will hold its leadership mantle than biotech.
Apple, like IBM in the 1980’s and Intel and Microsoft in the 1990’s is the key leadership “tell” for this market. If the SP 500 goes on to make a new all-time high, as I expect it will in late 2015 or early 2016, and Apple does not, that is your signal that SP 500 leadership is in the process of a longer-term change.
Just thinking out loud. Hope readers found something of value here.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.