The Biggest Threat to Apple Inc. (AAPL)’s Share Price: Google Inc (GOOG)

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While Apple Inc. (NASDAQ:AAPL) has faced its share of headwinds over the past few months, having slid 40% from its historic high above $700 per share last September, the company seems to still be facing some real challenges. There is a real concern among investors and industry-watchers that the company’s innovation rate has slowed significantly. Where Apple Inc. (NASDAQ:AAPL) was once known not only as a technology leader but for its ability to remain focused on great projects, the company has become more reactionary, trying to compete with increasingly well-executed competition. Despite all of these issues, however, the single largest threat to Apple Inc. (NASDAQ:AAPL)’s share price is the health of the overall market.

Apple Inc. (NASDAQ:AAPL)

Historic levels for the Dow
Tuesday’s trading session has seen the Dow Jones Industrial Average break through all-time intraday highs, trading at levels not seen since 2007 and on pace to close above the record close set Oct. 9, 2007. Much of the run has been triggered by general optimism about the prospects for the economy looking ahead. The rise puts the index up over 8% so far this year and is marked by money moving into stocks. Reuters quotes Russell Investments’ Chief Strategist Stephen Wood, who admits the move is not totally supported by fundamentals: “There is a lot of momentum and rotation going into equities from cash and bonds, and right now sentiment seems to have the upper hand over fundamentals.”

While some disagree, many commentators attribute the rise to action of the Federal Reserve and Chairman Ben Bernanke. Recently, whenever the market has even paused for a breather, the Fed has aggressively pushed to keep the rally alive. Those who take a softer view see Bernanke’s actions as providing liquidity only, and not being a driving factor in the rise. In either case, the Fed has played a significant role in the process, suggesting that any major policy shift has the potential to be a blow to the overall market.

The skeptics point out that these types of peaks often precipitate significant declines; the October 2007 peak came before stock indexes were essentially cut in half. While market internals are solid, the psychological impact of these various factors should not be ignored. Even if the rally has some room to run, the dance between the Fed and the market should be watched.

The Google effect
Over the past several months, as Apple Inc. (NASDAQ:AAPL) has languished, Google Inc (NASDAQ:GOOG) has surged to its highest level of all-time. Apple has stagnated to some extent, reporting its lowest growth statistics in recent memory, while Google continues to find growth and innovation. Though the connection itself may be coincidental, Apple Inc. (NASDAQ:AAPL)’s troubles are certainly not hurting Google Inc (NASDAQ:GOOG)’s ability to fight higher.

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