All posts from Janet
Janet in Analytics & more!,

The Apple trade is over

The Apple trade is officially over.

Before I start, to all the diehard Apple AAPL, +0.57% fans out there, yes, AAPL is still a good company, their products are great, I personally love my Macbook Pro, and although they are in a very fickle industry, it is impressive that they have been able to do what they have done. But good companies see stock prices fall, too.

There is also a coincidence between the AAPL trade and the shift in the psychology of the market, and ultimately that may, as simple as it sounds, be the reason the AAPL trade is over.

To start, we do not have free-flowing liquidity anymore, in fact we are now officially in a liquidity crisis, and the obvious flow of money into Apple is no longer there as it was before. In years past, any time money came into the market, it naturally came to Apple, and there was a natural bid that was further supported by stimulus.

The stock was a direct beneficiary of the added liquidity, not only driven by stimulus, but also by the assumption of margin debt on an institutional level. It seemed as if the stock price would not do anything but increase because there was an open spigot of new money flowing into the market, and some of that naturally found its way to the company’s shares.

Well, those days are over, and that constant bid in AAPL can no longer be depended upon. Arguably, Apple may be the last thing most people want to sell, too, given the marriage many investors have had with their iPhone provider. But when sentiment shifts happen like we are seeing now, being married to a stock can be disastrous.

I know the argument, the stock looks cheap with a multiple under 13 times earnings, but that won't look cheap if the growth rate stalls. In fact, it won't look cheap to investors either if the stock price starts to fall. Investors whose portfolios are leveraged with Apple shares will not appreciate a very modest growth rate from the company given what they have come to expect, much less the risk of the fickle consumer being tempted by something new that could and eventually will surface.

This is a little sidetracked from my point, though. My point is that the psychology of the market and the obvious shifts in liquidity have caused the Apple trade to change. Investors should not expect money to be there to pick up the pieces anymore.

More from MarketWatch