Stocktake: Bear market time for Apple

Bitcoin likely to see further falls; oil is on the verge of hitting a 52-week low

Amazon lost its trillion-dollar crown in October and fell into a bear market shortly afterwards. Last week it was Apple's turn, with the iPhone maker now having lost some $230 billion (€201 billion) in market value since early October. Investors took fright three weeks ago after Apple issued revenue guidance that was below analyst expectations and announced it would stop reporting unit sales for iPhones, iPads and iMacs. The latter sparked fears of a sales slowdown and those fears looked increasingly credible after a number of iPhone suppliers last week cut their revenue outlooks.

Too much should not be made of Apple's share price woes. Firstly, Apple is not alone – over 40 per cent of S&P 500 stocks had fallen into individual bear markets (falls of over 20 per cent) at October's low. Secondly, big declines are quite normal for Apple, which has averaged an intra-year correction of 18 per cent since 2009, according to Pension Partners' Charlie Bilello. At the same time, shareholders in Apple and the FANG stocks – Facebook, Amazon, Netflix and Google – should also be prepared for the possibility of further weakness. Apple is still up over 10 per cent this year; Amazon and Netflix still look expensive after huge gains in 2018; Facebook is the only one of the five to be down significantly in 2018.

Clearly, there is room for the tech giants to head lower, now that investors are finally having second thoughts about stocks that were too long regarded as no-lose propositions.

Bitcoin likely to see further falls

Bitcoin has been oddly calm in recent months, so much so the cryptocurrency was actually less volatile than the S&P 500 in October. That all changed last Wednesday, however, when bitcoin suffered its biggest one-day fall since March and plummeted below the $6,000 level that has acted as technical support in 2018. Contrarians like to buy when there is blood in the streets, but that’s asking for trouble with bitcoin.


Firstly, bitcoin produces no income so it is impossible to value. Secondly, this was the biggest bubble in financial history – yes, bigger than the tulipmania of the 17th century, according to analysis conducted by Convoy Investments not long before bitcoin peaked near $20,000 last December.

Accordingly, why should the bloodletting stop now? Bitcoin traded below $1,000 in early 2017, and there’s no reason why it won’t do so again.

"I could gloat about bitcoin collapsing 10 per cent in a day to $5,700," sceptical economist Nouriel Roubini tweeted last week. "But that is still some way to ZERO where bitcoin belongs".

Oil crash: should investors be worried?

Talking of volatility and bear markets, what about oil? Always a volatile beast, oil is also in bear market territory after falling a record 12 days in a row. It is on the verge of hitting a 52-week low just weeks after trading at four-year highs. Last Tuesday was especially volatile, with oil suffering its biggest one-day fall in three years. Major oil price falls invariably prompt chatter about sagging demand and a global slowdown. “The thing you have to worry about when you have a precipitous drop like this is it could be signalling bad things for everybody,” said Phil Flynn of Chicago-based Price Futures Group last week. “That’s the big concern.”

However, two things should be borne in mind. Firstly, no one really knows for sure what drives market movements. Citigroup last week blamed the falls on the US-China trade war, Donald Trump's warning to Opec not to cut supplies, Trump's about-turn on Iran sanctions, as well as increased shale oil production. However, Goldman Sachs suggested the oil price declines were largely technical in nature, driven by momentum traders and by investor positioning that triggered forced selling. Secondly, oil bear markets are all too common. During a similar scare last year, Stocktake noted that, since 1985, oil has been in a bear market more than one-third of the time. Far from signalling further falls, these tend to be good times to get long – a year later, oil has averaged gains of 18 per cent.

No sign of the “big low”, says Merrill

Stocks have been pounded since October but there’s not enough fear in global markets to suggest a bottom is near, according to Merrill Lynch’s latest fund manager survey. Often, fund managers run for the hills and opt for the safety of cash during corrections but they bought into the recent selloff, with cash balances falling from 5.1 to 4.7 per cent.

There is some fear there – one in three respondents think stocks have peaked, twice as much as last month’s survey – but the consensus is stocks will recover, with managers expecting the S&P 500 to gain 12 per cent from current levels. Overall, investor positioning “does not yet signal ‘The Big Low’ in asset markets”, warned Merrill. Still, contrarians may be tempted to overweight European equities; Europe is now the least favoured region in the world, with allocations falling to two-year lows.