U.S. stocks finished last week at a record high, and they may yet set another one today, though in early trading they're headed in the wrong direction. The benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI ) were down 0.29% and 0.11%, respectively, at 10:15 a.m. EDT. The most important macro event this week is the release of the Bureau of Labor Statistics' employment report for May at 8:30 a.m. EDT Friday. Analysts and investors will pore over the data for signs of a strengthening recovery, even as the yield on the 10-year Treasury bond is just 2.5%, a level that suggests a significant acceleration in economic growth is not part of bond investors' expectations. The most important corporate event this week -- or the one that will generate the most chatter, in any case – is Apple's (NASDAQ: AAPL ) Worldwide Developers Conference, which will kick off this afternoon with CEO Tim Cook's keynote address. (You can watch it live here, beginning at 1 p.m. EDT.)
The anticipation and excitement surrounding the conference is at a peak -- that alone is good reason to believe that Apple shares could decline today (and tomorrow), or at least underperform the broad market. Indeed, the stock was up 3.2% last week alone, hitting a 52-week high of $644.17 on Friday. Furthermore, as Walter Piecyk of BTIG Research pointed out on Friday, a sell-off is something of a tradition at this stage (or a six-year streak, in any event):
Apple's stock has rallied 8% in the month preceding the 2014 WWDC conference, which kicks off on Monday. This is reminiscent of the rallies in 2009 and 2010 when investors expected new iPhones and the stock rallied 12% and 8.5% ahead of the conference in those years, respectively. However, this time around there doesn't seem to be high expectations for any major new product releases. Maybe that could enable Apple to break its 6-year streak of selling off the day of and day after the WWDC conference. On average, Apple's stock has sold off 1.4% the day of and 1.5% the day after the WWDC conference.
I'm going to disagree with Piecyk's argument against a correction, however: While there may not be "high expectations for any major new product releases" per se, the stock price action leading up to the conference surely suggests high expectations for something.
This week's conference is expected to focus on iOS 8, the next version of Apple's operating system for the iPhone and the iPad, as well as health- and smart home-oriented applications, with no expectations for a new device such as a smart watch. Nevertheless, in terms of their potential impact on Apple's success in the marketplace, hardware and software are joined at the hip -- as Goldman Sachs remarked last week:
While Apple's software-only events have rarely captured the same level of excitement as its hardware launches, we believe this should change. Indeed, with the potential for substantial hardware differentiation and few new hardware categories that can substantially impact Apple's $175bn revenue base, iOS platform differentiation is becoming increasingly critical.
Still, the stock's run-up before and immediate reaction to the conference is unlikely to be predictive of Apple's long-term success. Furthermore, investors ought to feel quite comfortable holding the shares; as a benchmark, let me remind readers that New York University valuation guru Aswath Damodaran, who has been following Apple for years, pegged the shares' intrinsic value at $675 at the end of April.
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