Stocktake

Apple surge settles duel with Exxon for most valuable firm

“THERE are four asset classes,” said market strategist and blogger Barry Ritholtz last week. “Stocks, bonds, commodities and Apple.” Certainly, the stock seems to inhabit a different universe these days. It recently blew past analyst earnings expectations even as the overall corporate earnings picture darkens.

S&P 500 earnings are up 6.6 per cent on last year’s figures, but that drops to 2.8 per cent if one excludes Apple. The S&P has declined since 2007; Apple has risen six-fold. Apple and Exxon Mobil vied for the title of world’s most valuable company throughout 2011, but the iPhone maker’s parabolic surge in 2012 has settled that duel – Apple peaked last week at $490 billion compared to Exxon’s $410 billion.

Technology sector regains its lustre

Apple’s meteoric rise has also buoyed the Nasdaq, which is trading at 11-year highs. While the index remains 45 per cent below its all-time high in 2000, it’s fair to say the technology sector has regained its lustre.

Technology is the biggest sector in the S&P 500, making up 20 per cent of the index. SP analyst Howard Silverblatt notes that, since 1989, only the financial and technology sectors ever achieved a 20 per cent weighting.

In 1993, technology barely made up 6 per cent of the index. By 2000, it had ballooned to 34 per cent, presaging the dotcom collapse. The current situation is very different. Most tech firms have been no more volatile than the S&P 500 over the last five years. Tech giants like Apple, Microsoft, Oracle, and Intel are cash rich and trade on low multiples, while the sector is comfortably outperforming the overall index in terms of earnings beats. For a fifth year in a row technology is likely to remain top dog in terms of sector weightings.

Dow’s worst ‘tumble’ just 0.8%

"DOW'S tumble is worst in 2012", headlined the Wall Street Journallast Wednesday. The "tumble"? A fall of 0.8 per cent.

Volatility has simply vanished this year, with US and European volatility indices (the Vix and VStoxx) recently falling well below historical averages. However, the Vix recently rose by 20 per cent even as the S&P 500 remained flat. The number of bets that the Vix will rise has also soared and is now at its highest since August. While there’s little hint that fear is about to make a comeback, the low in the volatility cycle may have been reached.

Success, or not, of short-selling ban

That volatility decline and positive market sentiment allowed regulators in France, Belgium and Spain to lift short-selling bans last week. The bans were introduced last August to protect tanking financial stocks. A new study implies the ban likely served little purpose. Researchers from the University Libre de Bruxelles analysed 14 European markets between July 2008 and June 2009, when short-selling bans became de rigueur. They found that bans raise trading spreads and reduce trading volumes, while strict disclosure requirements placed on short sellers raise volatility.