Analyst: Apple’s record-breaking rally is about ‘MOMO’ not ‘FOMO’

Apple shares hit a new all-time intraday high on Tuesday, continuing the rally leading into and following the stock’s 4-for-1 split.

Apple Park in Cupertino, California
Apple Park in Cupertino, California

Ines Ferré for Yahoo Finance:

Year-to-date Apple is up 80%, while the S&P 500 is up about 8%. The move has some analysts on their heels as they aim to explain what’s happening to their clients.

In a research note to clients, BofA analyst Wamsi Mohan highlighted possible factors behind the stock’s “unprecedented strong run of outperformance vs. the broader market.” A recent “inflow of retail investors” suggests momentum as a factor, he said.

“Our conversations with institutional investors suggest that Fear Of Missing Out (FOMO) is not yet at work given the relatively quick rerating and concern that fundamentals can’t support continued upside,” he wrote.

“Analyzing the past few weeks of trading data suggests a strong inflow from retail investors, suggesting MOMO (momentum) is the strongest attributable factor,” he said, while warning that “momentum can cut both ways, especially given risk to Sep/Dec qtr estimates (particularly on high end iPhones).” Though he noted that “in the short term momentum can trump valuation.”

MacDailyNews Take: Amid the Apple rally, Mohan raised BofA’s Apple price target to $140 while maintaining a “Neutral” rating.

8 Comments

  1. Stock Market101: Wall Street doesn’t control, decide or “set” the price of a stock. Nor does it “reflect” the state of the economy, let alone the state of any company represented.
    For example, the success of Apple (or lack thereof) has no direct effect on the price of Apple’s stock. Rather, when traders are (in general) more interested in selling it than buying it, the price of a stock declines. The opposite is also true.
    If you “Play” the stock market (trade) you quickly discover the only way to make money on a rising stock is to be among the first to buy it (when it is still low). And the only way to avoid losing money on a declining stock is to be among the first to sell it (when it is still high). The net result, folks, is traders don’t watch the company behind the stock. They are watching each other. If a few start selling a stock, the rest rush to sell it, too. If they hear some news (or some analyst’s comments) that they think will cause other traders to react, they will try to be among the first to so react. Thus they become a self-fulfilling prophecy.
    Investors, on the other hand, are interested in the company. They buy and hold for the long term. For them, it’s a savings account with (hopefully) a better return. But because of this, Investors don’t influence price changes in any way.
    Wall Street is not smart, stupid or clueless. People who cry, “They just don’t understand Apple,” don’t understand the market. It’s a mob-mentality, pure & simple. They don’t care about you, me or Apple. They only care about each other and any “skill” they may have is simply the ability to predict what other traders might do before they do it.

    In other words, “traders” are like sheep… If a few suddenly start to run, they all run and in the same direction. Only afterward will analysts attempt to figure out why.
    What’s the solution for Apple? Minimize their reliance/exposure to traders. So, you begin share buy-backs and bond issues – with an eye toward reducing your risk (from traders) or perhaps one day eliminating it! (Get out of the stock market and go private. All they’d really need is lots of money to fund themselves! Hmmm.)
    I’ll get off my soap-box, now.

    1. True. The fact that wall street is soring with the US in its current state is clear evidence that wall street has no connection to reality. The same thing happened with Bush Sr, who kept pointing to wall street’s numbers while the nation was in recession.

  2. Half the country has money and half doesn’t. The half that does cannot invest in alternatives to the stock market, because they have dried up. Real estate prices are falling, manufacturing is down, new construction is limited. The tech stocks are being relied upon during the pandemic. AMZ has become America’s preferred shopping opportunity, iPhones are incredibly popular and AAPL had a killerfpandemic quarter, everyone is on Facebook. Microsoft is killing it in the cloud and with business. While Wall Street may not be reflecting main Street, it is reflecting the tech boom that is sustaining us now and will carry us into an interesting and dramatically altered future.

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