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Recent Apple pressure stems from combination of factors

Just a few months ago, things were looking great for Apple (AAPL) shareholders, as the tech darling was trading at all-time highs and the headlines were about when Apple could hit $1,000.

What a difference a couple a months make. Instead of debating if Apple’s market cap would cross the $1 trillion mark, we are wondering just how far it will fall. After a horrid day of trading yesterday, its market cap temporarily fell below the $500 billion mark. It is still impressive, but a big drop from where it was sitting just two months ago.

Apple has been highly volatile since the start of November. The stock had a volatility of 104% in November, which is almost unheard of for a company of its size.

What is driving the high volatility?

It is hard to pin the stock’s volatility on any one specific thing, but instead it seems like a mix of several factors all hitting at the same time.

New Products
All year, the stock has rallied in anticipation of a new iPhone and rumors of a possible iPad mini. These rumors assured investors and kept enthusiasm high. Now that these products are out, what is next? What new device can Apple bring to the table? We thought we see a new stand-alone Apple TV, but the company seems to have scrapped those plans for now. Uncertainty over where the company is headed is playing a big role in recent volatility. It was a little over a year ago that the company lost its visionary leader Steve Jobs, who oversaw most of the products that have been coming out lately. Can the new CEO, Tim Cook, lead the company to innovate at the same pace and with the same success? No one knows, and that is part of the problem.

Tax Considerations
Unless Congress acts to extend the Bush-era tax cuts, we are going to see capital gains tax rates revert to the levels we had under Bill Clinton. The most recent indications are that households earning about $250,000 a year will in fact see their capital gains tax go from 15% to 20%, so it makes sense that they would want to sell some winners this year in order to avoid the higher taxes they would face next year. Apple stock has posted gains of 25% or greater during each of the last four years, so there are plenty of gains to take, and we are seeing some of that. If capital gains do indeed go up, expect to see selling intensify during the last days of the month.

Margin Problems
Clearing firm COR Clearing raised the margin requirements to 60% from 30% Wednesday morning, meaning people wishing to take a position in the stock on margin now have to put up twice as much money. Margin increases usually lead to some selling pressure.

Market Share
One thing that has always worked in Apple’s favor has been its fat profit margins. It has been able to charge a nice premium for its phones and tablets, because the market was willing to pay them. Some analysts are getting concerned that it will not be able to continue this for much longer.

Yesterday, market research firm IDC said that Google (GOOG) powered Android tablets would rise to 42.7% of the global market this year, up from 39.8% last year. Apple’s share is expected to fall from 56.3% down to 53.8%. The greater competition that Apple faces, the greater the chance that they are going to have to adjust their price points, and any hit to their profit margins would lead to further selling of the stock.

Is it time to jump ship on Apple? Not necessarily. The company is still a dominant player in smartphone and tablets, and its PC and laptop market share has been growing. There are still millions upon millions of people in the world that will wait in line for its new products, and are loyal enough to never stray from their Apple merchandise.

What are your thoughts on Apple? Are you bullish or bearish on the stock over the next 12 months?


Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va. His articles typically cover big-picture events and forecasting what impact they will have on the stock market. In addition to writing for Fresh Brewed Media, Michael also wrote for AOL's BloggingStocks for three years, focusing most of his attention on the energy and technology sectors.

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.