Apple Stock Watch - Bears Push NASDAQ To 5-Year Lows

by , 5:30 PM EDT, July 10th, 2002

Wednesday Morning Activity

The markets opened with continued downward pressure from Tuesday's drop. Although the markets struggled to stay close to the opening numbers in early trading, by late morning the markets had signaled to investors to expect another down day.

Particularly hard hit were the drug and chip sectors of the markets. The drug sector has benefited from more generous prescription drug benefits from public and private insurance programs and the industry's traditional ranking as a safe haven for investors during challenging economic times. Despite this, the drug sector has been hit hard by concerns over accounting practices and recent negative decisions from the FDA on new drug therapies.

President Bush's speech on Tuesday calling for greater corporate accountability and the need for tougher laws and sentencing requirements for unscrupulous corporate executives was largely overshadowed by the decidedly negative pressure on stocks. Mr. Bush's speech was prompted by the aftermath of the Enron and WorldCom accounting debacles, but it brought no relief to the markets. Traders continued to focus on the lack of tangible growth in corporate earnings despite economic reports of a growing economy.

Wednesday Market Close

By early afternoon the market indexes for the day looked like a children's playground slide, as unrelenting selling pressure pushed prices significantly lower. Investors have yet to find a key industry sector to provide leadership for growth and move stock prices higher. The tech sector continues to trade like a ship adrift in open ocean, battered by rough seas and heavy winds.

There is no sign that corporate America is ready to increase IT spending. Reports about consumer purchasing patterns indicate that although consumers continue to spend in a challenging economic environment, new computers are not on the list of priorities. The tech-heavy NASDAQ Composite Index is below its post 9/11 lows and has fallen to 1997 levels. This is believed to reflect strong investor concerns about the ability of tech companies to return to noticeable revenues and earnings growth anytime in the foreseeable future.

At the close of trading on Monday the Dow Jones Industrial Average had fallen more than three percent to finish at 8,813.50, down 282.59. The S&P 500 was off 32.36 at 920.47. The NASDAQ Composite Index closed down almost three and one-half percent, dropping 35.10 to end at 1,346.02 Apple lost $.21 to end at $17.32.

Apple

On Wednesday FMR Corp. (the parent firm of Fidelity Investments) announced that it had cut its holdings in Apple Computer, reducing its investments in the Cupertino-based company from ten percent of Apple's outstanding shares to five percent of the company.

Apple has long-battled to win the support of institutional investors. The interest of mutual funds, pension funds and other large, institutional shareholders is important in order to maintain demand for Apple's stock and the ability of the share price to advance. FMR's decision to cut its holdings in Apple is indicative of the negative mood of institutional shareholders toward the technology sectors of the economy and follows reports of very soft computer sales to both businesses and consumers.

Apple's products are not marketed to compete on price and the company's product sales are once again subject to the "expo effect" as Macintosh buyers take a wait-and-see attitude toward purchases ahead of next week's MACWORLD Expo in New York.

Apple continues to rollout new retail stores as the company positions itself to take advantage of a future upswing in consumer purchase activity. However, FMR's decision, at least in part, also reflects the realization that Apple is subject to the same economic realities effecting other PC makers despite the high-profile roll out of the LCD iMac in January. Apple executives continue to win praise for their outstanding management of the company and its resources, but even award-winning product designs and the early implementation of emerging technologies can not fully suspend the continuing slow down in consumer computer purchases from impacting the company's sales and earnings.

Check out the new and vastly improved Apple Finance Boards, a moderated forum for Apple Investors and people who are interested in Apple's financial dealings!

For full quotes on all the companies mentioned in this article, we have assembled a set of stock quotes at Yahoo! for your reference. For other stories regarding Apple's stock activity, visit our updated Apple Stock Watch Special Report.