Verizon: iPhone! 4G! Stock market: Yawn. Why?
Today’s stock market is a wonderful time to select and buy stocks. Even with the nice rise since Wall Streeters returned from their summer vacations, the investor activity shows no evidence of speculative fever. In fact, “asleep at the switch” would be a more apt description. The Verizon (VZ) situation is a perfect case example.
The Wall Street Journal’s front page had the news many have been waiting for: “Apple Readies Verizon iPhone” (By Yukari Iwatani Kane and Ting-I Tsai, Thursday, October 7, page A-1). The article is packed with details and perspectives that make this look like a sound, positive move by Verizon that could increase the company’s sales and market share.
In addition, as an unusual bonus, the paper reported, “Verizon to Launch 4G in 38 Cities This Year” (By Roger Cheng, Thursday, October 7, page B-9). This article, too, is full of important developments for Verizon, answering previously voiced concerns.
Following these articles was a deluge of write-ups discussing the news. Here are two that provide added insight into what might be coming and what the ramifications could be:
- “After the Verizon iPhone, What’s Next?” (The Wall Street Journal Blogs, by Jennifer Valentino-DeVries, October 7 – 12:56 PM EDT)
- “Connecting the dots to a Verizon iPhone” (CNNMoney.com, by David Goldman, October 7 – 2:28 PM EDT)
Stock performance seemed to ignore the news
This news, in a “normal” stock market, would have produced price rises by Verizon, Apple (AAPL) and QUALCOMM (QCOM). AT&T (T) likely would have declined. Here’s what actually happened:
As the S&P 500 Stock Index slipped (0.1)%, Apple was unchanged, QUALCOMM was down (0.2)%, and both Verizon and AT&T fell by (1.3)%.
Why? It’s certainly not because the news was unimportant. And it wasn’t because the previous day saw the movement. Although Verizon was up and AT&T was down, the amounts were small and the other stocks’ did not exhibit anything special: S&P 500 up 0.1%, Apple up 0.1%, QUALCOMM up 0.9%, Verizon up 0.9% and AT&T down (1.1)%.
Likely cause: Lack of investor interest
There have been markets like this in the past. They occur when investor interest in stocks is low, and there is little activity. In some markets, a general hesitation has caused a delay between, say, the release of information and the stock price changing. In other markets, a general reluctance to act combined with a lack of confidence has produced a pronounced delay. I believe that’s where we are today, with an added factor: The large focus on macro factors has many investors ignoring distinguishing characteristics. For example, they are in or out of the US stock market or components (e.g., telecom). This widespread approach gives the company-focused investor an ability to earn added returns from the better companies while avoiding the weaker ones.
However, in the end, stocks do react to fundamentals, so don’t conclude that the delay is a warning sign. Rather, it’s a confirmation that the stock market has not yet returned to full valuation.
So… Enjoy this market. The pause between the news and the action gives us a valuable opportunity to think first, then act.
