Treasury Risk Essay

Treasury Risk

Introduction

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Stock market is considered a key indicator of the health of the economy of any country, its policies and the investment climate in the country - Treasury Risk Essay introduction. This is of particular importance under the globalization regime. The extent of indication depends upon the kind of emphasis accorded to the stock market and the companies listed on the stock market. NASDAQ is one of the premium stock markets of the world known to invite the who’s who from the corporate world. This study is an effort to analyze the stock price movement of the share of a reputed company. For the purpose of this study we’ve chosen Apple Inc (AAPL). Illustration of the price movement of the company would be made over the period of six months from June 2009 to Dec 2009 and subsequently from Jan 2010 to May 2010. Data will be presented in tabular form as well as in the form of a line chart. The volatility is price movements is often interpreted as an indicator of the strength of the company, indicating towards the fundamentals, faith of investors, futuristic projections etc. An effort would also be made to compare the price movement of Apple Inc. with one of its competitors. Citing a number of research reports Arisoy (2009) state that volatility risk is priced and negative in the cross-section of US stock returns. The stock price movement of Apple Inc. depends upon a variety of factors as it has a worldwide presence. The consolidation of its markets, acceptability of its products, and the kind of media buzz its products are able to generate around the world has a direct impact on the price movement of Apple Inc. in Nasdq. United States has been the worst suffer during the recent recession. Though the global economy in general was affected by the recessionary trends, the triggers started off from US. This also had an impact on the sale, revenues and profitability of corporate houses across the board. As signs of improvement are emerging on the horizon, there’s renewed hope in the air that things are on way up. Stock and commodities markets too have started gaining the respect and curiosity from investors.

 

Data

The principle data sources for this study are;

i.                    Stock price movement chart from Nasdq, is an important source to track the movement of stocks over a period of time. The website also provides tools for making comparisons with other related companies.

ii.                  The website of Apple Inc. is another source of data. Investor information available on the website of the company provides lot of information related to the policy announcements, launch of new products, corporate social responsibility statements etc. Such news items often influence the price movement of the stock in general. Besides the micro environment the factors on micro scale like the state of economy in the country, the policy initiatives of the government, the policies announced by competing companies also impact the movement of prices on the stock exchanges. The news items like Apple was able to sell one million iPads in just 28 days of its launch provide a huge support to the stock price movement of the company.

iii.                Recent newspaper and journal articles are other reliable sources of information for the purpose of this study. In addition to getting factual information, newspapers and periodicals often carry analysis by experts in their respective fields. Such analysis not only helps us in formulating an idea about the specific issues, but it also helps us in providing guidance towards adopting suitable illustrative methods for analyzing the stock price movements.

Results and Discussion

Table-1 indicates the stock price movement of Apple Inc. on the Nasdaq during the month of May in the year 2009 and subsequently in the year 2010. The table also indicates the volumes being traded in the stock market during the corresponding period. Having a cursory look at the price movement, it can be seen that in May 2009 the span of movement was just about $10 as the share price changed from $127.24 in the beginning of May to $135.81 at the end of May 2009. Interestingly the span of price movement during May 2010 was almost similar with a price of $266.35 on May 3 to $256.88 on May 28, 2010.

Table-1: Movement of Apple Stock (Symbol-AAPL) on NASDAQ
AAPL Price during May-2009
AAPL Price during May-2010
Date
Closing/Last Price
Volume
05/29/2009
135.81
1,62,76,120
05/28/2009
135.07
1,73,60,630
05/27/2009
133.05
2,30,80,610
05/26/2009
130.78
2,25,89,690
05/22/2009
122.5
1,06,39,520
05/21/2009
124.18
1,45,49,410
05/20/2009
125.87
1,38,52,690
05/19/2009
127.45
1,32,68,680
05/18/2009
126.65
1,63,34,800
05/15/2009
122.42
1,30,93,110
05/14/2009
122.95
1,59,17,350
05/13/2009
119.49
2,11,82,250
05/12/2009
124.42
2,16,75,000
05/11/2009
129.57
1,44,46,470
05/08/2009
129.19
1,67,10,190
05/07/2009
129.06
1,89,43,130
05/06/2009
132.5
1,69,07,110
05/05/2009
132.71
1,42,15,240
05/04/2009
132.07
2,16,94,490
05/01/2009
127.24
1,41,94,280

Date
Closing/Last Price
Volume
05/28/2010
256.88
2,90,92,250
05/27/2010
253.35
2,36,10,050
05/26/2010
244.109
3,03,03,620
05/25/2010
245.22
3,73,34,680
05/24/2010
246.76
2,68,68,300
05/21/2010
242.32
4,36,77,740
05/20/2010
237.76
4,56,42,480
05/19/2010
248.34
3,65,84,210
05/18/2010
252.36
2,78,36,690
05/17/2010
254.22
2,72,01,950
05/14/2010
253.82
2,70,52,640
05/13/2010
258.36
2,13,86,290
05/12/2010
262.09
2,33,40,750
05/11/2010
256.52
3,02,95,420
05/10/2010
253.99
3,50,77,030
05/07/2010
235.86
5,97,94,600
05/06/2010
246.25
4,56,54,970
05/05/2010
255.985
3,14,79,040
05/04/2010
258.68
2,58,02,930
05/03/2010
266.35
1,61,91,950

 

The big difference in price movement was Apple Inc. shed about $10 in May 2010 while it gained $10 in May 2009. This trend is also visible in the line charts depicted below.

As the chart-1 indicates the share price was quite volatile during the month, with fluctuations from $127.24 to $132.71 in the first week itself followed by a dip of $119.49 in the middle of the month and then another peak at $127.45, but only to come back to $122.9 towards the end of third week. The share price picked up some momentum towards the end of the months and consolidated its position with touching the one month high of $135.81. It will be worth emphasizing here that this particular period was marked with some indications of an improvement in the economic conditions. The indications though were not quite convincing, as some analysts kept pressing the panic button for the US economy. The optimism was therefore not across the board and even the corporate houses were not in a position to take firm positions in respect of new product launches, mergers and acquisitions etc. The trend is quite apparent even at Apple, as the company came out with just one major press release during May 2009, that too for announcing a worldwide developer’s conference the following month.

 

The Chart-2 indicates price movement of Apple Inc on the stock exchange during the month of May 2010.

During the first half of the month the stock appears to provide equally confusing signals to the investors. Starting from a peak of $266.35 on May 3, the first day of trading in the month, the stock took a beating in the first week itself and touched a low of $235.86, followed by quick gains and scaling another height of $262.09 in the second week. The share started drifting once again and after sustaining the levels around $250, during the third week, investors made use of another profit booking opportunity which brought down the prices to $237.76. Once again the last week of the month saw another rally towards consolidation and the month ended at $256.88, about $10 below the levels at which the month began with.

 

The volatility is also apparent if we take a look at the volumes being traded on the bourses during the period. Chart-3, indicates the volumes of Apple’s share traded on Nasdaq during the 20 days of trading in May 2009 and May 2010. One distinctively apparent pattern that emerges from this chart is that the volumes were much higher throughout the month in May 2010 as compared to May 2009. On the first day of trading in May 2009 the volumes stood at 1,41,94,280 while in May 2010 the volumes were reasonably higher at 1,61,91,950. In May 2010, the volumes even attained a high of 5,97,94,600 i.e. more than 4 times the lowest volumes during the month. Table-2 shows the difference in volume of trade in May 2009 and May 2010. The table indicates the big difference and wide fluctuations in the volumes.

Movement of stock prices also indicates the level of interest of the investor community, the market watchers and the policy makers in the particular stock. If the expectations are quite high from a particular company in the short to medium term, the price movements will indicate a volatile trend, but on the other hand an easy going company, having steady returns and not having any new plans around the corner will not be able to generate much interest amongst the investor community. Comparison of Apple Inc. stock price movement with that of Microsoft Corporation (MSFT) has been done in Table-3.

Table-3: Comparison of Price and Volumes (AAPL and MSFT)
May 2009
May 2010-06-01
Closing Price of AAPL
Closing Price MSFT
127.24
20.24
132.07
20.19
132.71
19.79
132.5
19.79
129.06
19.32
129.19
19.42
129.57
19.32
124.42
19.89
119.49
19.75
122.95
20.06
122.42
20.22
126.65
20.6
127.45
20.31
125.87
20.38
124.18
19.82
122.5
19.75
130.78
20.34
133.05
20.13
135.07
20.45
135.81
20.89

Volume AAPL
Volume MSFT
1,41,94,280
6,31,41,180
2,16,94,490
5,42,80,560
1,42,15,240
6,68,33,870
1,69,07,110
5,96,02,330
1,89,43,130
6,86,72,620
1,67,10,190
6,75,83,970
1,44,46,470
6,37,46,620
2,16,75,000
7,19,06,020
2,11,82,250
4,92,80,690
1,59,17,350
5,44,18,560
1,30,93,110
6,12,32,150
1,63,34,800
4,60,03,810
1,32,68,680
5,13,04,730
1,38,52,690
4,74,39,030
1,45,49,410
5,82,19,980
1,06,39,520
3,73,16,760
2,25,89,690
4,49,85,430
2,30,80,610
4,28,90,980
1,73,60,630
4,54,75,340
1,62,76,120
4,60,28,600

Closing Price of AAPL
Closing Price MSFT
266.35
25.8
258.68
26
255.985
25.01
246.25
26.07
235.86
26.27
253.99
26.84
256.52
27.11
262.09
28.24
258.36
28.5975
253.82
28.94
254.22
28.93
252.36
29.24
248.34
29.44
237.76
28.88
242.32
28.94
246.76
28.21
245.22
28.98
244.109
29.85
253.35
30.13
256.88
30.86

Volume AAPL
Volume MSFT
1,61,91,950
6,74,94,090
2,58,02,930
13,62,93,600
3,14,79,040
17,64,07,600
4,56,54,970
9,81,71,030
5,97,94,600
7,36,34,740
3,50,77,030
11,75,88,700
3,02,95,420
8,79,03,910
2,33,40,750
6,17,28,810
2,13,86,290
5,26,54,570
2,70,52,640
4,60,51,850
2,72,01,950
6,33,17,860
2,78,36,690
4,52,77,260
3,65,84,210
4,70,93,940
4,56,42,480
6,37,73,770
4,36,77,740
8,66,31,120
2,68,68,300
17,36,79,400
3,73,34,680
12,85,02,900
3,03,03,620
6,66,77,610
2,36,10,050
8,20,45,510
2,90,92,250
4,39,84,120

Microsoft is a competitor to Apple in many respects. If we take a look at the product profile of both the companies, it would appear that Microsoft is a software company while Apple is predominantly a hardware company. But the moot point is the software produced by Microsoft is the key decider as far as production of Computer and IT equipment is concerned. On the other hand Apple Inc. prefers to have its own set of hardware and software tools, which brings it in direct confrontation with Microsoft. Chart-4 indicates comparison of Microsoft and Apple Inc Price movements during May 2009.

This indicates that the price of MSFT was comparatively steady, while there were fluctuations in the price movement of AAPL. This could be because of the element of innovation that Apple brought about in the form of iPhone and iPad in the recent past, while Microsoft was comparatively silent during the period.

 

Conclusion

The above analysis indicates that Apple Inc appears to be a company with much more curiosity amongst investors in the recent past. In fact, Apple Inc is known for the surprise element that it includes in its range of products and services. The stock price movement seems to indicate this very trend over the period that we analyzed its stock.

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