Another day in the red for U.S. equity markets as Apple led a tech stock slide that bled across the major indexes.  The S&P 500 has fallen for 5 straight sessions and is now negative for the month after falling 7 percent in October.

Shares of Apple, that recovered a little, are now teetering on the edge of a Bear Market, down nearly 20 percent or more from their recent highs. A third of the stocks in the S&P 500 are also in Bear Market territory, even though the entire index is not. But, as JC Parets likes to say, “It’s a market of stocks, not a just a stock market.”

Why it Matters

As we know, Apple is a particularly heavy stock, accounting for more than 4 percent of the S&P 500, which is a market capitalization weighted index. It’s also the most widely held stock in ETFs and among the most widely held stock in mutual funds. It accounts for 4 percent of the Vanguard 500 Index Investor and the SPDR S&P 500 ETF. Even if you think you don’t own any of the stock, there is a pretty good chance one of the mutual funds in your retirement accounts does, if you have one of those. It’s also Warren Buffett’s top equity position inside Berkshire Hathaway’s equity portfolio, which owns 251 million shares of the company.

As a reminder, these recent declines started when Apple reported its most recent quarterly earnings on Nov 1. In its conference call with analysts, the company said it would no longer break out unit sales of iPhones anymore. That didn’t go over very well. The company also reigned in its fiscal first quarter of 2019 forecasts by a couple billion citing slowing international sales. That didn’t go over well, either.

Never mind that Apple had just reported its best quarter ever, generating $63 billion in revenue in just 90 days.  Investors only care about the future, and it didn’t look as good as the past.

Cut to Monday of this week when Lumentum Holdings, the company that supplies the facial recognition technology inside the iPhone, cut its sales forecasts citing lower demand from one of its ‘large customers’. Investors and analysts read between the lines and hit the Sell button faster than you can punch in the security code on your device.

What’s Next

The fourth quarter is typically strong for Apple, given holiday sales. It still expects to generate between $89-93 billion in sales for the quarter, which is staggering. Unfortunately, for Apple and many other large growth technology companies, it needs to crush those estimates to regain investor confidence again.

For individual investors wondering what they should do if they own Apple outright or they own ETFs that hold it, ask yourself these questions:

Am I too concentrated in this one stock?

If it fell another 20 percent, how would I feel?

If it rises 20 percent and gets back to par, will I sell it?

    If those answers are ‘Yes’, ‘Terrible’ and ‘Yes’, you are likely too concentrated in that stock, you need to diversify your portfolio, and you need better rules on how to manage it.

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