Earnings Worries Sends $AAPL Tumbling 3.6%

| Analysis

Poor earnings report from just about every company but Apple sent stocks tumbling on Friday, including a 3.6 percent drop for $AAPL. Apple reports its own September quarter results on October 25th, but misses from Google, Microsoft, General Electric, and several other companies apparently have investors worrying about Apple, too.

AAPL Chart

AAPL Chart for October 19th, 2012
Source: Yahoo! Finance

Math

AAPL ended the day at US$609.84, down $22.80 (-3.60 percent), on heavy volume of 26.2 million shares trading hands. All three major indices saw sharp drops, with the DOW down 1.52 percent, the NASDAQ (led by AAPL) down 2.14 percent, and the S&P 500 down 1.66 percent.

If you you're keeping score at home and don't mind some quick, back-of-the-envelop math:

-1.52% + -2.14% + -1.66% = A Bad Day For Everyone(-Shortsellers)

It's The Economy, Stupid

The reality is that there was no Apple-specific driver for AAPL's drop, but macro-economic concerns have always had an effect on the company's stock. This has been magnified during the last two years as Apple rose to be the world's most valuable corporation. There is simply too much money tied up in Apple Inc. for it to be otherwise.

To that effect, Art Hogan, market strategist at Lazard Capital Markets, told Marketwatch, "We've had some household names disappointing on revenue, earnings or guidance. We had about 80 companies reporting this week: financials that did better and technology that did worse. Since this is the worst day we've had in months, it reminds us that we haven't had much volatility or downward pressure since the bottom in June."

Orange Futures

There has been some Apple-centric news of late, as a variety of analysts lowered their estimates of Apple's September quarter iPhone sales. The reductions were all driven by concerns about supply constraints, and most of those analysts left their December estimates intact.

It's possible, however, that this provided the excuse for many investors to unload their AAPL in the face of these broad economic concerns, especially those with lots of profit locked up in their holdings. AAPL is, after all, still up 50.6 percent in calendar 2012, even though it is now $92.26 (-13.1 percent) off its closing high of $702.10 set on September 19th.

Media Event

The other factor that has been having an effect on Apple's stock is the company's October 23rd media event. The company is expected to announce an iPad mini at the event, and analysts have been raising iPad estimates based on that. Earlier in the week, it was a catalyst for buying—some investors could have been taking those short term gains off the table, too.

Which leaves all eyes on Apple's October 25th earnings report. In times of economic uncertainty, investors are going to be renting time with the Hubble Telescope to pore over Apple's earnings announcement. The same will be true for the media event being held two days before.

It could be a bumpy ride for AAPL investors.

*In the interest of full disclosure, the author holds a tiny, almost insignificant share in AAPL stock that was not an influence in the creation of this article.

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Comments

BS Byrne

My projections for the upcoming week as follows: AAPL Down even MORE another 9.9% going into the earnings announcement with Bad Misses to send the stock spiraling another 12.87%. I hope you play the SHORTS.

Lee Dronick

Buy, it will climb back up

wab95

“In times of economic uncertainty, investors are going to be renting time with the Hubble Telescope to pore over Apple’s earnings announcement.”

Great imagery, Bryan; and and an excellent review of macro-economic principle. I would have argued that those investors would, instead, be looking at Apple’s earnings report through a tunnelling electron microscope to get at every bit of least minutiae in the most exacting detail, but that’s a professional bias, I suppose.

The big story this week, however, from 35,000 ft view, is the plight of the PC empire. By every indication, to which we add economic indicators such as sales amongst vendors of hardware and software, the PC era is dead.

Welcome to the brave new world of the post-PC era.

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