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The questions are the same every year at this time. In homes all over the world, children ask, “Is there really a Santa?” In stock markets all over the world, investors ask, “Is there really a Santa Rally?” I think the first question is legitimate, and it restores my faith in humanity. The second question, especially coming from otherwise intelligent adults, doesn’t destroy my faith in humanity, but it does make me wonder about the general IQ of investors, observers, analysts, and pundits.
The question about Santa has pretty much been settled, at least as far as Apple, Inc. (NASDAQ:AAPL) is concerned. They believe in Santa. It’s kind of difficult to not believe when he delivers a gift the size of the country of China. The gift was so big, he had to deliver it a couple of days early. China Mobile (NYSE:CHL), the single largest mobile provider in the world, has entered into a distributorship agreement with Apple. Let’s make one thing clear before I go any further. Apple has already been selling its iPhones in China, but partnering with China Mobile is a whole different kind of present. China Mobile has over 750 million customers. Granted, that doesn’t mean that all of China Mobiles’s customers will gravitate to the iPhone. Let’s just say that it can carve out only a modes 3% share. That would be 22.5 million additional iPhone sales, an amount that eclipses the 16.8 million iPhones sold worldwide this year. In fact, that would be a 34% unit increase with the China market still barely untapped.
There are only so many ways a company can expand its sales. Apple’s access to the burgeoning China market that is already hungry for mobile products opens, not doors, but floodgates of customers. Apple shares are up 3.15% to 566.38 on the NASDAQ. That’s not a big increase, but trading this week is light and we could see some significant upward movement in the stock after the holidays are over. The rise in Apple’s share price has an effect not only on investors, but also on the NASDAQ and the S&P as well. When a company with a market cap in excess of $530,000 million gains 3.15%, that equates to a mere additional $17,000 million, and that will drive an index up!
And when the indexes go up before Christmas, some call it the Santa Effect or the Santa Rally. Do I believe in it? Frankly, no, I do not. I believe the effect is a fantasy – a self-created figment of investors’ collective imaginations. It’s Christmas. Everybody is in a cheerful, expectant mood, except for one particularly infamous London shopkeeper. Any positive thing that happens has been hoped for, so anything good that happens appears to be unusually good. And, because this is the same spirit every year at this time, we perpetually see what we want to see.
To prove my theory, watch what happens the rest of the week. Expect very little, if any, movement in shares on the London Exchange on Wednesday and Thursday this week. If you are looking for an effect, that is one that happens like clockwork.
