Apple, President Trump, and COVID-19. These three popular topics of conversation often find their way to the newsfeed, sometimes even sharing headlines. But on the surface, they do not seem to have anything in common.
The media has provided minute-by-minute coverage of President Trump’s COVID-19 episode for the past few days. When the news first hit the wires (see tweet below), late on Thursday, stock futures headed down sharply. As I mentioned over the weekend, Apple was not immune to Friday’s market funk: the stock dropped 3.2% and gave up virtually all its gains from earlier in the week, despite lack of company-specific news that could have caused the selloff.
The connection between President Trump, COVID-19 and Apple’s stock observed in the past few days should serve as a lesson to investors. Here is how I would summarize it:
- In the long term, i.e. several years if not a decade or more, Apple shares are likely to reflect the fundamentals of the company. If the Cupertino company performs well, so should its stock over time.
- However, in the short term, Apple is much more likely to move in tandem with the broad stock market. News that impact the economy at large or the markets will probably sway Apple’s share price and, at times, frustrate shareholders who might see their investment drop in value for no good reason.
Regarding the second point above, check out the graph below. It illustrates the correlation between Apple share price movements and those of the S&P 500 over a rolling three-month period. Correlation of +1.0 means that both move up and down in lockstep, while correlation of zero means that the price movements are completely unrelated. Notice that, especially in the past three years, Apple has largely moved in whatever direction the broad market was headed. This is the “beta effect” at play.
Trump, COVID-19 and Apple: key message
The key takeaway is that Apple, President Trump and COVID-19 might not have any obvious link to each other. However, Apple shareholders should understand that what moves the markets will likely move Apple stock, especially in the short term. In order to benefit from owning equity in a high-quality, high-performing company, one must probably be patient beyond the next few months or couple of years – which aligns with the idea of owning, not trading, Apple stock.
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(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)