Stocktake

Investors worry about falling Apple

Apple investors are nervously awaiting this week’s earnings report, which takes place after the market closes tomorrow.

The stock hit $485 (€364) last week, which is 31 per cent below last year’s $705 peak. Bespoke Investment Group notes that Apple, which is still the most valuable company in the world, has experienced 10 declines of 20 per cent or more over the past decade, and that the current decline is no greater than average.

In other respects, this is no ordinary correction, however. The current decline has lasted nearly 50 per cent longer than average.

Additionally, the 32 per cent spread between Apple’s stock price and analysts’ average target ($728) is at its widest since early 2009.

The “gaping hole” between the stock price and analyst targets is easily the biggest of any SP 100 stock, according to Bespoke.

Analyst downgrades can be expected if earnings – particularly iPhone 5 sales – disappoint, but that may already be priced into shares, and any kind of earnings beat could trigger a relief rally.

Market strategist Barry Ritholtz cautions against being short on the stock, saying it is setting up as a “bear trap” ahead of earnings.

“I’m not excited about being long but there’s such risk, this thing could explode to the upside,” said Ritholtz.

Big bear expects carnage

Has London’s most famous bear finally turned bullish?

Société Générale’s Albert Edwards has been apocalyptic since the mid-1990s, warning of an “ice age” for equities. Last week, however, he said European stocks were “unambiguously cheap”, even referring to a “once-in-a-lifetime opportunity” for long-term investors.

Edwards slammed UK pension funds for the extent of their move out of equities and into bonds. “Even as a trenchant equity bear, I have to say that this is ridiculous,” he said. “It allows the rest of us to pick up stocks at cheaper and cheaper prices.”

The bear in Edwards is alive and well, however. He expects US equities to more than halve, and says European investors still face major falls over the next 12 to 18 months.

Always colourful, his conclusion is vintage Edwards: “I expect there to be total carnage. But I’m more bullish than I was.”

Evidence of tiring S&P 500 bull

The S&P 500, which last week hit its highest level since December 2007, has been in a cyclical bull market since March 2009.

The duration of the current bull – 3.8 years – is the average duration of all bull markets since 1929, notes Investech Research, and slightly above the median duration (3.6 years).

Bull market durations vary widely, of course. Barry Ritholtz sees the current cycle as similar to 1973-74, when a six-year bull market began.