by Jeff Reeves | February 28, 2012 5:00 am
What would life be like without Apple (NASDAQ:AAPL)? Most consumers can’t fathom a world without iPods, iPads or iPhones. And if they can, they have to admit that many less-popular smartphones have become what they are in many respects by emulating the success of Steve Jobs and AAPL stock — even if they don’t use the Apple brand. The sheer number of Apple patent challenges over the years is proof of that.
But let’s look beyond the ability to update your Facebook status on your iPhone for a second and think bigger picture, about the dollars and cents of Apple and AAPL stock. Not just because these numbers are tangible and more easily quantified, but because in many respects the financial impact of Apple is perhaps the most dramatic of all.
In short, the S&P would have a whole lot less punch to it, and the “average earnings growth” of the broader market would be pretty unimpressive.
Consider that according to Thomson Reuters, “the fourth-quarter earnings growth rate for the S&P 500 is running at 8.4%, or 5.3% if Apple’s results are excluded.”
Think about that. Without Apple, you lose almost 3 full percentage points from the profit growth for the stock market — or at least for its most widely cited group of 500 companies.
In fact, thanks to the fact that the S&P is market cap-weighted, gadget giant Apple now accounts for a 4% of the entire Standard & Poor’s index. If Apple stock was on the decline, it could theoretically cause “the market” to decline — at least as measured by this index of 500 stocks.
In short, one company has enough pull to skew the average in this benchmark that contains 500 constituent companies.
Why? Well, because Apple is that big. The S&P 500 index has an adjusted market cap of over $12.36 trillion as of this writing. Apple’s market cap is $490 billion. That’s, as discussed, 4% of the total index.
Here’s another crazy factoid: The 4% weighting for Apple is more than all materials, telecom or utilities stocks in the S&P 500 — to make it the eighth-largest “sector” in the entire index. Materials companies make up roughly $446 billion as of Feb. 24, or 3.6% of the index. Utilities were $426 billion (3.5%), and telecom was just $335 billion (2.8%).
So if the utility sector crashed or telecoms soared, it wouldn’t even show up in the S&P 500 if Apple alone moved the other way.
Other big stocks carry clout, too. It’s not uncommon for a few companies to carry the bulk of a weight for an index. But Apple is the biggest of the big dogs. AAPL stock is the most valuable equity in the S&P 500, worth more than Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) combined and topping Exxon Mobil (NYSE:XOM) by $78 billion.
So what would life be like without Apple from a dollars-and-cents perspective? Well, unless the company’s breakneck stock performance or superior earnings growth was distributed among the other S&P 500 constituents, the “stock market” would look much bleaker.
At least as measured by this benchmark, anyway. After all, Apple isn’t a Dow component.
Which begs the question … what if Apple was a Dow Jones Industrial Average company?
Well, if Apple had joined the blue chips just as of Jan. 1, the Dow already would have hurtled over the 14,000 threshold, and investors would be bracing for it to break through its all-time highs. Of course, that’s because the Dow is a price-weighted index and Apple’s $500-plus valuation would make it overweighted in the DJIA.
Then again, AAPL stock already is overweight to some extent in the S&P 500.
In short: Any way you slice it, Apple is a market-moving stock. Without it, the Dow is significantly lower than it would be otherwise. With it, the S&P 500 is significantly higher.
Much like trying to imagine life without iPhones, it’s impossible to really know if things would be significantly worse for investors and the market without Apple. Still, there’s a preponderance of data that indicates Apple is arguably the most important stock on all of Wall Street.
Jeff Reeves is the editor of InvestorPlace.com. Write him at email@example.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.
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