Apple might be big, but it isn't a bellwether

They will matter, of course, if you lost money as Apple dropped from $702 in September to $439.88 on Friday. And the company's struggles may be of more than passing interest even if you never intend to own any of its shares.

Apple remains a colossus, even if Exxon Mobil surpassed it as the most valuable publicly traded company in the world on Friday, exactly one year after iPhone sales propelled Apple to the top spot. Still, all of those iPhones, iPads and other gadgets make Apple matter in many households.

But the company's influence on the stock market is another question. Aside from the drag that Apple's decline has imposed on indexes that include it, its recent travails haven't affected other stocks very much, and they don't provide much information about the market as a whole. That's the view of Paul Hickey, co-founder of the Bespoke Investment Group, who has some statistics to support it.

"The company just isn't the market bellwether," he said.

In good times and bad, Apple has largely gone its own way, and the rest of the market hasn't followed its lead. Apple isn't nearly as influential as, say, I.B.M., which appears to be the true market bellwether, Mr. Hickey contends.

I.B.M. is the market leader - the stock that other stocks follow - based on Bespoke's calculations, which are boiled down into one statistic. That is the likelihood that a stock's return on the day after its quarterly earnings report matches the direction of the Standard & Poor's 500-stock index over the next five weeks.

Over the last decade, for example, the rise or fall of I.B.M. stock on the day after the company reports earnings has matched the S.& P. 500's direction 75 percent of the time. That's the highest percentage for any stock in the index over that period. The comparable figure for Apple is only 37.5 percent.

If those tendencies continue - and that's a big "if" - bulls have reason to cheer. Both companies issued earnings reports last week, and they received very different reactions in the market. After the close of trading on Tuesday, I.B.M. reported rising profits on a modest decline in revenue, and the market reaction was strikingly positive. I.B.M. shares rose 4.4 percent on Wednesday. If I.B.M. is the market bellwether, it implies that over the next five weeks, the overall market is likely to rise.

Apple, on the other hand, reported earnings after hours on Wednesday, and the market reaction was brutal. Apple's guidance for 2013 disappointed analysts - its profit was flat although its revenue grew - and its shares fell more than 12 percent on Thursday. But Apple isn't a bellwether, Mr. Hickey says. Its earnings reports and its returns the next day have not matched the market's subsequent five-week direction with any regularity.

Looking at the short term, Apple shares have often moved quite independently of the rest of the market, too. On Thursday, for example, the S.& P. 500 was flat for the day despite the steep drop of Apple, which accounts for more than 3 percent of the index. The Dow Jones industrial average, in which I.B.M. has the greatest weight, at more than 11 percent, doesn't include Apple at all, and it rose slightly for the day. On Wednesday, by contrast, both indexes rose, along with I.B.M. and Apple shares.

Why should the market's one-day reaction to I.B.M.'s earnings have anything to do with market returns over the next five weeks? Mr. Hickey speculates that I.B.M., which provides sophisticated, integrated digital solutions to business problems, now derives revenue from many of the world's big companies and accurately reflects the prospects of corporate America. "When I.B.M. is doing well, a lot of the corporations in America are doing well," he says.

But it's quite possible that the apparent connection between I.B.M.'s earnings and the overall market direction is nothing more than an anomaly, and may not continue.

That's the assessment of Burton G. Malkiel, the Princeton economist and author of "A Random Walk Down Wall Street," the investment book now in its 10th edition. He has found that, for the most part, the stock market does not follow predictable patterns.

"If it did," Professor Malkiel says, "money managers would be able to beat the market regularly, but the vast majority of them can't."

Mr. Hickey says he isn't sure what to make of the I.B.M.-market connection, either. I.B.M.'s role as a bellwether is plausible because it is such a well-established company and touches so many industries. But other companies that score highly as bellwethers don't have a reach wide enough to look like natural leaders of the entire market, he says. After I.B.M., his statistics show that the next four companies, in descending order of influence, are Harmon International, the maker of audio and electronic systems; Altera, the semiconductor company; the Ball Corporation, which provides packaging for consumer products and aerospace technologies for commercial and governmental customers; and Cooper Tire and Rubber.

Then again, being a bellwether is an informal designation, and in its original meaning, it wasn't entirely positive. The word's etymology makes that clear: a wether is a castrated male sheep, and a bellwether is one of those emasculated sheep with a bell hanging around its neck. Shepherds use bellwethers to lead other sheep around. Writers and market analysts use the word as a metaphor for a leader, and have done so for decades.

Through the years, traders, analysts and journalists have designated many a market bellwether, including United States Steel, General Motors, AT&T, RCA, Chrysler, DuPont, the New York Central Railroad, Consolidated Edison, Intel, Microsoft, Cisco Systems, Citigroup, General Electric and the 30-year Treasury bond. I.B.M. has been called a bellwether, on and off, since at least the 1970s.

Professor Malkiel agrees that Apple isn't a bellwether, but he doubts that any company is. He says he believes in the wisdom of long-term, buy-and-hold investing in low-cost index funds and advises against seeking hidden market patterns caused by bellwethers or much anything else.

Basing the market's five-week direction on its one-day reaction to I.B.M. earnings is too simple to be plausible, he said. "If you search through data deeply enough you'll find all kinds of connections," he said. "But are they real? If you believe this one is, you can go out and bet your money on it. But I can tell you that I won't be doing that."

© 2012, The New York Times News Service