There’s no denying Apple Inc. (NASDAQ:AAPL) has been one of this year’s hottest stocks. In fact, Apple’s 30%-plus returns in 2017 make it one of the top 20 performers in the S&P 500. And while the companies ahead of AAPL stock are all fine companies, all of them were in the right place at the right time, catching a fortuitous headwind. It’s unlikely they’ll sustain their current bullish paces.
Regardless, while Apple stock is a trade any stock-picker can appreciate, investors of all ilks — stock jockeys, indexers, value hunters, etc. — absolutely have to recognize that Apple wields a surprisingly large amount of influence on the broad market’s overall results. Ditto for the S&P 500’s overall earnings.
Some might even the overall impact of AAPL stock on the market’s health is a little scary.
Apple’s Impact on Market Performance
As of the latest look, Apple remains the world’s biggest company as measured by market cap. With Apple stock priced near $152, Apple is an $800 billion behemoth. The next-nearest name is Alphabet Inc (NASDAQ:GOOGL), but at “only” $655 billion, it clearly has some work to do before catching up with the world’s most recognizable consumer-technology company.
For perspective (and take the number with a grain of salt since it can change quite a bit from day to day), the entire combined market cap for the S&P 500 is on the order of $20 trillion thanks to the rally following the election of President Donald Trump.
If you can’t do the math in your head, here it is:
Apple makes up about 4% of the cap-weighted S&P 500 index, even though it’s only 0.2% of the total companies in the index. Alphabet accounts for 3.3% of the S&P 500. That’s a lot of influence from one — or even two — companies. Thing is, that influence may be underestimated unless you do the math.
The math is a bit complicated, by the way. It’s a comparison of two moving targets, akin to shooting a moving airplane from another moving airplane. It’s hard. Fortunately, Standard & Poor’s analyst Howard Silverblatt crunched the numbers and concluded that as of early April, the recent rally from AAPL stock accounted for 11% of the S&P 500’s 2017 progress. Without Apple, the S&P 500 would have been up less than 5% at the time, versus the roughly 6% gain it had made with Apple on board.
The numbers have changed since then, but only to add to the impact AAPL had made overall. The S&P 500 is now up 5.7% for the year so far, while Apple’s gain has grown from 24% then to 31% now.
Without Apple, it’s conceivable the broad market wouldn’t have made any measurable gain over the course of the past month and a half.
Apple’s Influence on S&P 500 Earnings
As much of an impact as Apple stock has on the S&P 500’s performance, it makes an even bigger impact on its bottom line. Though the first-quarter numbers are still being sorted out, for the fourth quarter, Apple’s profits made up 6.6% of the $27.90 per share the index earned.
That was actually a down quarter. Competition from other smartphone makers heats up and Apple puts more attention on lower-margin goods and services. In the fourth calendar quarter of 2015, Apple’s net income made up 9% of the S&P 500’s bottom line.