I had mentioned before that Apple stock has a history of outperforming the broad market during the third quarter of the year. The graph below illustrates the point. On the other hand, history also suggests that the odds flip against the stock in the fourth quarter (notice the red bars in November and December).
The seasonality pattern was recently mentioned by UBS analyst David Vogt in his downgrade of Apple shares, from buy to hold. The rationale goes beyond pure coincidence: the new iPhone models are usually introduced in September and begin selling ahead of the holiday season. It seems reasonable that anticipation would build up ahead of the announcement, pushing share price higher, and wane once the catalyst is left behind.
Today, I look at historical patterns once again to try and determine how reliably profitable the “sell Apple in the fourth quarter” strategy has been.
Hard to make a call
The histogram below shows the fourth quarter return distribution since Apple’s IPO, in 1980. Here are a few important observations:
- Apple’s average fourth quarter gains have been nearly 12%, at an annualized rate of about 55%. This is not bad whatsoever, considering that Apple has returned about 19% per year since it went public in the 1980s. So, at first glance, it looks like the holiday season has historically been better – not worse – for Apple shares.
- The range of returns, however, has been very wide. Apple has lost as much as 42% in the fourth quarter of 2000 and gained as much as 66% in the fourth quarter of 2004 (both figures non-annualized). One standard deviation from the mean has been nearly 30 percentage points, which means that even “usual” fourth quarter returns have been largely unpredictable and erratic.
- When only the post-iPhone era is considered, average fourth quarter returns drop by about seven percentage points. The range of returns is also very wide, going from roughly negative 30% to positive 30%. But because fewer data points are available, it is even harder to draw firm conclusions about share price seasonality since 2007.
- Interestingly, the third quarter dynamics have been exactly the opposite. Apple shares have historically not performed much beyond average in the third quarter since 1980 (average of 5% non-annualized), but they have stood out since 2007 (average of 12%). There could be, therefore, some truth to the iPhone cyclicality.
Don’t fear the fourth quarter
My best shot at offering Apple investors a key takeaway is the following: think long term and do not fear the holiday season. To be fair, there seems to be some loose evidence in the data suggesting that the iPhone did, in fact, introduce cyclicality to Apple’s stock price performance in the third and fourth quarters of each year. However, the data also suggests that, even in a “normal year”, anything can happen – let alone in a highly atypical 2020.
In summary, and to reinforce a point that I have made recently, Apple is a better stock to own, not to trade.
Read more from the Apple Maven:
Apple vs. Rest Of FAAMG: Who Has Held Up Best?
Apple Stock: A Rare Wall Street Downgrade
What Investors Should Expect Of The iPhone 12
(Disclaimers: the author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)