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Talk about putting all your eggs in one basket. Barclays reports about 15% of the entire S&P 500′s year-to-date performance can be traced entirely to one stock: Apple.
The tech heavyweight’s meteoric surge has been well documented. And its outsized weighting has had a huge impact on the tech-heavy Nasdaq Composite. But now the broad S&P 500 has become Apple top-heavy, a trend that strategists are starting to fixate on.
“Apple’s disproportionate contribution to the most recent S&P 500 rally raises the question: Is it rational to expect a single stock to provide outsized contributions to the index price return?” asks Barclays’ Barry Knapp.
He points out it’s not uncommon for a single stock to have an outsized contribution of anywhere from 5% to 10% of the index. But trolling through the history books shows a double-digit percentage contribution from a single stock over the past 20 years has been a much less frequent event.
Apple’s 15% hold of the index’s return is the largest for one firm since 1991, according to Barclays. And the last time any tech giant had a remotely close contribution was Microsoft in 1999.
Additionally, Apple’s growth has wreaked havoc on the overall corporate earnings picture. S&P 500 first-quarter earnings are expected to grow at a 1.4% rate from a year ago. Stripping out Apple leaves the growth rate close to flat. ”Any slip-ups from Apple could be costly to equity investors,” Mr. Knapp says.
The broad takeaway is the bigger Apple gets, the more susceptible the overall market is if the company stumbles. So as long as Apple keeps growing at its searing pace, everything will be fine. If not, look out below.
“The heavy reliance on a single company for price returns and earnings growth poses significant concentration risk and sets up for disappointment if fundamentals falter or if prices and valuations run too far too fast,” Mr. Knapp says.
Consider yourself warned.
Apple shares were recently down 1.2% at $610.51. The stock is up more than 50% this year.
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+610. Thank you for the warning, Steven. This is the best post from MarketBeat in a while. We’ll find out soon if an extra week of earnings/revs last qtr didn’t distort the outlook, as was the case when Intel pulled the same stunt last year. Intel’s revenues haven’t been the same since.
Nobody wrote that this situation is a rather volatile one. For Apple a 100 point move down would be merely a healthy correction, but for the index? Chad in CO
I agree. The motive behind the bad reports on apple is obvious. But why?
I agree. The bad reports on apple is obvious. But why?
How about just take out AAPL from S&P 500 index altogether? In that way, everybody can be free. Or even better, everybody get equal weight of S&P 500 indexing? Otherwise , how much is too much? How to less it is too less?
“S&P 500 first-quarter earnings are expected to grow at a 1.4% rate from a year ago. Stripping out Apple leaves the growth rate close to flat.” is that something to be so “proud” of?
MarketBeat looks under the hood of Wall Street each day, finding market-moving news, analyzing trends and highlighting noteworthy commentary from the best blogs and research. MarketBeat is updated frequently throughout the day, helping investors stay on top of what's happening in the markets. Lead writer Steven Russolillo spearheads the MarketBeat team, with contributions from other Journal reporters and editors. Have a comment? Write to marketbeat@wsj.com.
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