Nasdaq Holds YTD Gains After Apple Earnings

Apple's better-than-expected results helped push the Nasdaq higher last Friday, doubling down on the trend that large caps are pushing the index higher as it reached a new 2023 gain of 21.20% YTD. Despite Paypal’s major miss on Monday, the index kept its grip since then, but can this change after today’s CPI report?

The Latest Major Drivers

Apple published its latest earnings last Thursday, pleasantly surprising investors. The company managed to increase sales of its flagship iPhone, giving enough profit to increase the dividend by not only 4% but also the share buyback program by $90B. Over the weekend, famed investor Warren Buffet pointed to precisely these two aspects in his general praise for Apple and its leadership. Following the stellar earnings, the vast majority of analysts still see an upside for the stock, even after rising 33% so far this year.

Apple has the second largest weighting on the Nasdaq after Microsoft (which also beat earnings expectations a couple of weeks ago), with Paypal in ninth place. The market reaction highlights a trend that has accelerated since the middle of last March: Large-cap stocks are pulling up the Nasdaq. The Nasdaq has grown at double the pace of its equal-weighted version, growing ~21% so far this year, compared to ~11% for the equal-weighted index.

A Trend for the Future?

The mid-March inflexion point isn't a coincidence; that was when the banking crisis broke out with the collapse of SVB. Investors piled into larger companies, which boosted the firms with higher capitalisation, pulling indices higher. This implies that reversing risk aversion might not necessarily bring as much upside to the market if it means investors move from large to small caps.

Many savvy investors, including Warren Buffett, are betting on Apple continuing to outperform. In one of the more cited quotes from Berkshire Hathaway's investor meeting over the weekend, Buffet said, "I don't understand the [iPhone] at all, but I do understand consumer behaviour." The implication is that Apple isn't just a tech fad and has staying potential. This explains why Buffett looks at every opportunity to increase his stake in the company.

Nasdaq Near Local Top

If the Tech index breaks past the peak of 13292, prices could accelerate to last August's high of 13722 but perhaps to as high as to reach the wedge's upper trendline, depending on how long it takes to move higher. This assumes the correction down to 12720 concluded the second trough (out of two), while the third peak (currently in play) has not ended as of yet. Moreover, it assumes the 13k handle won't succumb to pressure unless a deeper correction extends the second trough to lower territories, with 12500 being the first major support.

Key Takeaways

Apple's better-than-expected results pushed the Nasdaq higher, highlighting a trend of large-cap stocks driving the index higher. Analysts see continued upside for Apple's stock after Warren Buffett praised its leadership and dividend increase. The trend of large-cap stocks pulling up the Nasdaq began during the banking crisis in mid-March, and investors like Buffett believe Apple has staying power. If the tech index breaks past 13292, prices could accelerate to last August's high.