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Apple Stock: The Number One Talking Point In 2023

While several hot topics could have an impact on Apple stock next year, one stands out above the rest. Here is what AAPL investors should know.
  • Sure, Apple is facing serious supply chain issues that are widely expected to drag the company’s holiday quarter financial performance.
  • But there is a good chance that the direction of Apple stock  (AAPL) - Get Free Report over the next few months will depend much more on the economy and the markets at large.
  • Today, I look at historical price behavior and explain why AAPL is only likely to recover next year if stocks in general do as well.
Figure 1: Apple Stock: The Number One Talking Point In 2023

Figure 1: Apple Stock: The Number One Talking Point In 2023

(Read more from the Apple Maven: Apple Stock: 3 Huge Themes To Follow In 2023)

What Will Move Apple Stock In 2023

I have recently written about the top 3 themes for Apple stock in 2023: (1) the announcement of a mixed reality device, (2) resolution of Apple’s supply chain problems and (3) improvement in the macroeconomic landscape.

Of course, different investors will have differing opinions on which topic above (or any other not listed) will be most important. I have my own strong opinion on this subject, one that is backed up by historical share price behavior and correlations with the S&P 500  (SPY) - Get Free Report.

It’s All About The Economy

I am a strong believer that history does not always repeat, but it often rhymes. This is especially true when past events are justified by a fundamental understanding of how things work, rather than simple coincidence.

This is the case of stocks. Generally, the same factors that cause stock XYZ to rise or decline also play an important role in how stock ABC moves. In statistical terms, stocks are generally positively (and even highly) correlated with each other.

The rationale is intuitive: if the economy is growing, unemployment is low, inflation is under control, credit access is easy and fairly cheap, companies are investing in their operations and consumers are spending, virtually every corporation and their stocks will do well.

Of course, an exception here or there will exist. Management teams can make bad decisions, certain industries can struggle, and even bankruptcies can occur when times are good for everyone else. But again, these are exceptions.

2022 has been a challenging year for the global economies and a bad one for stocks. While it is unclear if we are in or heading towards a recession, the sudden spike in consumer prices and interest rates alone have already caused plenty of damage to the markets.

In my view, 2023 will most likely be a good year for Apple stock only if it is also a good year for the S&P 500. And for this domino effect to play out, 2023 also has to be a much better year for the global economies – that is, lower inflation, stable rates and absence of a severe recession.

History shows that Apple stock usually dances with the rest of the market. This is evident in the high, positive correlation between AAPL and SPY, especially during times of market correction – which is the case today.

The chart below may deserve a couple of looks, as it packs quite a bit of information. Here is basically what it tells us:

  1. While 30-day (calendar) correlations between AAPL and SPY can be a bit all over the place, the 180-day average correlation of +0.49 suggests that both tend to move together, either higher or lower, very often.
  2. Correlations are the highest when the S&P 500 is in correction mode (i.e., 10% below all-time highs, indicated by the shaded grey areas). The correlation coefficient average during times of market distress is +0.61 vs. +0.49 across the entire 41 year period. This is probably because, when investors are generally bearish, they tend to buy and sell stocks in bulk, driven by the same sentiment and common market themes.
  3. AAPL moved a bit more independently from the S&P 500 between the IPO year of 1980 and the mid-1990s, when Apple struggled with internal issues that almost led it to bankruptcy. The average correlation coefficient between 1980 and 1997 was +0.38.
  4. Since 1998, first due to the “rising tide that lifts all boats” phenomenon of the late 1990s and then as Apple matured as a company, correlations with the S&P 500 moved much higher. The average of the past 24 years has been +0.56.
  5. Today, the correlation coefficient of +0.87 is about the highest that it has ever been.
Figure 2: AAPL vs. S&P 500: correlations of daily returns since 1981.

Figure 2: AAPL vs. S&P 500: correlations of daily returns since 1981.

Apple Investors: Hope For A Market-Wide Rebound

Yes, Apple’s supply chain woes are a real problem for the Cupertino company. And yes, I think that the launch of a mixed reality device or some sort of announcement regarding autonomous vehicles could be game-changers for Apple in the long term.

But if the question is about the performance of Apple stock in 2023, I think that the direction of the S&P 500 is what will matter most. This is especially true now, when AAPL and SPY are both in bear market territory and investor sentiment should impact both equally.

For this reason, if trying to time entries into and exits out of AAPL in the next 12 months or so, pay especially close attention to things like GDP growth, inflation, interest rates and the alike.

We Asked Twitter

Recently, I asked the Twitterverse: “which of the following events or catalysts would most likely push Apple stock back to its all-time high in 2023?” Here is what poll takers had to say:

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(Disclaimers: this is not investment advice. 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)