Are we surprised over this? In a word: No. Was there any logic to it all? Of course not. How, in an environment where S&P downgrades treasury bonds and the next day the market tanks with the only thing selling being treasury bonds can there be any logic? How, in a market where the Fed says that they will keep interest rates near zero until at least 2013, and the market tanks immediately—putting the Dow Jones Industrial Average (DJIA) into free-fall—can there be any logic? Take a look at Tuesday’s price action.
AAPL Chart for August 9th, 2011
In the market drops of both 2008—and even 1987—there was a great rebound within a few days. If you think yesterday was bad, go back to 1987 when the stock of our favorite fruit crashed 18% in one day on a downgrade from Morgan Stanley and RBC.
In fact, during the month of September of 2008, Apple dropped 35%. Did this reporter sell his? Of course not. Did a huge number of individual Apple stockholders sell theirs? It became a feeding frenzy to get out of Apple at any price.
On Black Monday, also known as October 19, 1987, the DJIA dropped 22.61% bringing it to 1738.74. Yes, we have our decimals right. We went from around 1800 to around 12,000 in just over 20 years. This speaks well of the resiliency of our markets. If you held onto your stock during both meltdowns and waited a bit, you would have done much better, for the most part, than selling into the widening pool of fear and greed and then buying when the waters looked safer.
Earlier today we noted that that the market cap of AAPL had overtaken that of Exxon-Mobil intra-day giving it the highest market cap of any stock on any market in the United States. Just to clarify a bit, a market cap or capitalization is the number of all the shares of that stock multiplied by the price of the stock. That’s pretty amazing when you think that only ten years ago, the market cap of AAPL gave it the position of 287 on the S&P 500, well under the middle. Today it’s ready for it’s close-up and likely to close at number one any day now.
Unfortunately, Exxon overtook Apple in the last hour of trading closing with a market cap of $348.3 billion. Apple had to settle for second place since all its stock was only worth $346.7 billion. But market caps are moving targets, and with a mere $1.6 billion to go, Apple is well positioned to be the top dog.
Can you believe how much money we’re talking about? We find it hard, too. Can you believe that Apple has more free cash than the United States of America? As I’m sure you’ve read, Apple has $76.2 billion while our penny-ante Government only can cough up $73.8 billion, and the Government can turn on the printing presses any time it wants. However, Apple can come out with the iPhone 5 any time it wants, which may be worth more than the Government printing presses. In this we are only being slightly facetious.
We remember when Michael Dell in 1987 told the Gartner Symposium when asked what should be done to fix Apple: “What would I do? I’d shut it down and give the money back to the shareholders.” An old Chinese proverb says “May you live in interesting times.” We think that we do.
Wall Street Journal Video discussing Exxon v. Apple Market Caps