by Patrick O’Connor
We’ve seen a lot of product wars between Microsoft (MSFT) and Apple (APPL) through the years, from desktops to tablets and now from smartphones to smartwatches. Yes, by now everyone has heard that the next “must have” electronic device is a smartwatch, yet many people don’t realize just how much is riding on these watches.
The continuation of one of the greatest stock market runs in history could come down to the success or lack of success from watch sales. Not computers, smartphones, or electric cars, but watches. In other words, if Apple Watch sales fall short of expectations, the whole stock market could enter an extended rough patch, maybe even a recession. I’ll explain.
Apple is sporting a $740 billion market cap, the largest in US history. It’s nearly twice as big as #2 ranked Google (GOOG). As a result, Apple’s stock price has the most influence, of any stock, on the future direction of the stock market. Where Apple goes, the stock market could follow.
What’s troubling is that the stock market’s historic rally off the 2008-09 lows is long in the tooth, without a major correction, and technology stocks have been on a tear for an extended period. The tech-heavy Nasdaq stock index recently revisited its all-time high of 5,000, a level first reached 15 years ago, at the height of the dot-com mania.
Many analysts have argued that the Nasdaq at 5,000 today is very different than 5,000 in 2000. In March 2000, the top 20 stocks in the Nasdaq collectively earned just $26 billion in the trailing 12 months. In March 2015, the top 20 earned $167 billion. So, earnings definitely matter more today, but the key isn’t the level of earnings. It’s the growth rate of earnings that drives the overall market higher. When growth dries up at the top of a market cycle, stocks usually take a beating.
So, the big question is will Apple Watch sales be huge enough to keep Apple and the stock market rallying? That’s a tough question, but there are analysts who believe the Apple Watch is a sketchy bet.
For starters, Apple’s longtime rival is shipping its smartwatch about three weeks ahead. Microsoft Band ships April 1 and Apple Watch ships April 24. That’s enough time for Microsoft to take a bite out of Apple’s projected sales, particularly if April 15 tax season doesn’t go well for many would-be smartwatch buyers.
Microsoft Band retails for $199.99. This smartwatch is being positioned as a “Live healthier and be more productive” watch.
Apple Watch is expected to retail from $350.00 for the basic model to as much as $17,000 for the 18-karat gold edition. Apple describes its smartwatch as “our most personal device yet,” “an incredibly precise timepiece,” “entirely new ways to stay in touch,” and “a smarter way to look at fitness.” Unfortunately, you need an iPhone 5, 5C, 5S, 6 or 6 Plus to pair with an Apple Watch, otherwise the smartwatch isn’t so smart. The Band has cross-platform compatibility, working with multiple types of smartphones.
One has to wonder if the Watch will be a game changer, like the iPhone, or a device that doesn’t offer much more than “feature creep,” like adding a flashlight or vibrator to your razorblade for a closer shave.
Smartwatches in general don’t do more than a smartphone, and the watches don’t fully function without a phone. Most people are accustomed to wearing their timepieces all day and night. Smartwatches have to be charged.
I could spend a lot of time comparing the features of these watches, but this article isn’t about which watch is better, or which one is going to sell more. It’s about identifying the tipping point for the overall stock market. Here’s what could happen in 4 steps.
- Microsoft tips the Apple cart by taking a bite out of Apple’s sales
- Smartwatch sales in general are weaker than expected
- “Sell in may and go away” seasonal stock market selling kicks in
- Fed raises interest rates in June
Of course, this bull market has proved a lot of naysayers wrong, and Apple is the all-time king of turning doubters into believers. The weeks ahead will reveal the truth. Stay connected to Owler updates.
About Patrick O’Connor
Patrick won a 2010 Summit International gold medal and 2010 Creativity International silver medal in the financial services category. He began his career at a major Wall Street firm in San Francisco and later became a managing editor for a well-known money manager and financial publisher in Lake Tahoe. Patrick has been called a trailblazer in the financial industry for creating some of the first e-newsletters in the 1990s and blogs in the 2000s. He currently writes for several Wall Street firms and Owler, while raising three children and coaching little league baseball.