Apple earnings to determine whole market's fate?

Published Mon, Oct 5 20158:01 AM EDTUpdated Mon, Oct 5 20159:43 AM EDT

Evelyn Cheng @in/evelyn-cheng-53b23624 @chengevelyn

Apple 's October earnings report could be a big factor in determining whether or not U.S. stocks get a fourth-quarter rally. "The fact that Apple can't get going is negative for the market," said Marc Chaikin, CEO of Chaikin Analytics. The stock closed out the third quarter with a whimper. As the overall market gained on the last day of the quarter, Apple underperformed Wednesday, closing up about 0.8 percent while the S & P rallied 1.9 percent. Apple fell 0.65 percent Thursday, while the S & P squeezed out a 0.2 percent gain. "The size and volatility in this (is similar to) small cap issues, which speaks to uncertainty," said Howard Silverblatt of S & P Dow Jones Indices. "Apple's volatility is so high and the market is so emotional right now. Earnings season will make a big difference here." Apple's fiscal fourth quarter results are scheduled for release after the bell on Oct. 27. Investors will scour the report for news on iPhone sales, especially in China. "If those (quarterly) numbers don't come through, this correction will continue into a bear market," Silverblatt said. "The earnings are that important. Apple has good numbers but the market always expects more." Here's what investors are closely monitoring: "The October earnings report is always a big one for Apple because it gives the forecast for the holiday seasonally supporting demand for Apple," said Morningstar's Brian Colello, noting his firm still expects the stock to reach $140 a share. "The bigger drivers of growth, large screens, China mobile, still have legs to run," he said. "It's all about China and the iPhone for the next month or so." Read More History shows fourth-quarter rebound may be ahead Apple closed at $110.38 a share Friday, exactly unchanged for 2015, but down 18 percent from its 52-week high. Concerns about slowing growth in China, highlighted by the devaluation of the yuan in August, was a major factor behind the late August correction in U.S. stocks. While companies such as Apple and Nike have so far successfully tapped into the growing number of brand-sensitive Chinese consumers, investors may not be as confident in Chinese demand. Colello expects iPhone sales won't grow at the same rate as last year. Apple's stock can hold up "only if sales of the iPhone are strong," said Brian Blair, principal at Grays Peak Capital. "If they're not strong, it cannot recover." He said demand for the new iPhone appears weaker now than last year, as the device was readily available in the store he visited. Early last week, Apple said it sold a record number of new iPhones in the three days after their launch. Analysts said comparisons could be questionable as the 13 million units sold was across 12 countries, including China, up from 10 countries for the previous launch. The new iPhone 6s and iPhone 6s Plus will go on sale in 40 additional countries on Oct. 9, Apple said. A DigiTimes report Thursday raised concerns about lowered demand for iPhone sales in December, based on a supplier's disclosure of Apple reducing orders for parts. Read More Mystery: Why is Apple having such a bad week? "Apple is extremely well positioned around growth on the heels of this iPhone 6/6s super cycle over the coming year, although the glass half empty view of the name is a major dark cloud over Apple's stock," said Daniel Ives, senior analyst at FBR Capital Markets, which has an "outperform" rating. "It's a guilty till proven innocent growth story until the Street sees the forecast from Cook & Co. on October 27th, that's when the tide turns positive in our opinion." To be sure, stocks could may find more to worry about from the Federal Reserve than an individual stock. "While Apple certainly is the biggest component in the S & P 500, I think any further weakness in it will be more related to iPhone sales rather than being reason for a broader market sell-off," said Peter Boockvar, chief market analyst at The Lindsey Group. "The rest of the market will be focused on the Fed predominantly." With a market cap of more than $600 billion and 5.7 billion shares outstanding, Apple is the largest component of the S & P 500 and the stock with the greatest weight in the Nasdaq 100. The stock also expanded its impact by becoming a Dow member in March. A TD Ameritrade report on its 6.3 million retail clients in May showed that Apple had the largest allocation in equity portfolios, regardless of investor age. As Apple is a component of the S & P 500, 11.4 percent of the stock must also be held by licensed index funds, Silverblatt said.

Shoppers and salespeople at an Apple store in New York.

Scott Mlyn | CNBC

Apple's October earnings report could be a big factor in determining whether or not U.S. stocks get a fourth-quarter rally.

"The fact that Apple can't get going is negative for the market," said Marc Chaikin, CEO of Chaikin Analytics. The stock closed out the third quarter with a whimper.

As the overall market gained on the last day of the quarter, Apple underperformed Wednesday, closing up about 0.8 percent while the S&P rallied 1.9 percent. Apple fell 0.65 percent Thursday, while the S&P squeezed out a 0.2 percent gain.

"The size and volatility in this (is similar to) small cap issues, which speaks to uncertainty," said Howard Silverblatt of S&P Dow Jones Indices. "Apple's volatility is so high and the market is so emotional right now. Earnings season will make a big difference here."

Apple's fiscal fourth quarter results are scheduled for release after the bell on Oct. 27. Investors will scour the report for news on iPhone sales, especially in China.

"If those (quarterly) numbers don't come through, this correction will continue into a bear market," Silverblatt said. "The earnings are that important. Apple has good numbers but the market always expects more."

Here's what investors are closely monitoring: