Stocks were in a short-term holding pattern Tuesday ahead of some big economic news due out later this week, but Apple gave a big boost to shares of a new supplier.
The Dow Jones industrial average (^DJI) fell 21 points to 15,618 and the Nasdaq composite (^IXIC) gained 3 points to 3,940, and the Standard & Poor's 500 index (^GPSC) fell 5 points to 1,763.
GT Advanced Technologies (GTAT) soared after signing a major supply agreement with Apple (AAPL). GT rallied 20 percent. It's getting a $578 million advance to provide Apple with sapphire, the material used to protect certain features in the new iPhone 5S, and other products. There's also speculation that it could be used in a new smartwatch product.
GT competitor Rubicon Technologies (RBCN) rode its coattails. It jumped 10 percent. But current Apple supplier Corning (GLW) could lose some business. Its shares fell 4 percent.
Pandora Media (P) is singing sweet music. It reports a greater share of the music streaming business. Analysts say that indicates Pandora is meeting the challenge of Apple's new iTunes Radio service. Pandora shares rose 8 percent.
As for Apple itself, shares were little changed despite a research firm's report that the company's profit margin on the iPad Air has improved significantly. But investors are still waiting to hear directly from Apple about sales of the tablet during its launch weekend.
Shares of fashion designer Michael Kors (KORS) rallied more than 5 percent after posting a 40 percent jump in quarterly sales and raising its outlook for the full year. Kors stock has far-outpaced its competitors in the luxury goods market. It's nearly quadrupled in price since debuting just over two years ago.
Among the Notable Losers:
• Leapfrog (LF) got squashed, losing 8 percent. The maker of tablet computers for kids actually beat earnings estimates, but it warned that results for the full year will be disappointing.
• Software maker BroadSoft (BSFT) also issued an outlook that fell short of expectations. Its stock tumbled 24 percent.
• And it's a similar story for Tenet Healthcare (THC). The hospital operator lost about 9 percent after sharply lowering its outlook for the full year.
What to Watch Wednesday:
The Conference Board releases leading indicators for September at 10 a.m.
These major companies are due to report quarterly corporate earnings.
If You Only Know 5 Things About Investing, Make It These
After Market: Indexes Waiver, but Apple Gives a Healthy Boost to New Supplier
Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.
Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.
Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.
The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.
Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?
If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.
Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."
Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.
Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.
Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"
Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.
Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.
Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.
You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.
This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.