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Apple Stock Is Falling Again. Why That’s Not a Problem for the Dow.

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The

Dow Jones Industrial Average

is bucking the weakness seen elsewhere in the stock market Thursday—and it would be doing better if it weren’t for

Apple,

Microsoft,

and

Salesforce.com,

the three largest tech stocks in the benchmark.

The Dow has gained 137.39 points, or 0.4%, to 33,152.76, trouncing the

S&P 500,

which has fallen 0.5%, and the Nasdaq Composite, which is off 1.5%. The

Invesco QQQ

exchange-traded fund (QQQ), which tracks the

Nasdaq-100,

has slumped 1.9%.

Apple (AAPL) has dropped 2.3% to $121.93 on Thursday, and as the largest U.S. stock by market value, it’s hitting the S&P 500 and the Nasdaq indexes, which are market-cap weighted.

The Dow, though, is price weighted. And because of Apple’s relatively low price—it ranks 22nd by price—the tech giant has shaved around 19 points off the Dow. Salesforce.com (CRM), though a much smaller company, has subtracted around 17 points, even though it’s fallen just 1.1% to $210.75, thanks to that higher price. Microsoft (MSFT), down 1.9% at 232.60, has shaved just under 30 points off the blue-chip benchmark. Add it up, and the Dow would be up close to 200 points.

The Dow, though, has even higher-priced stocks, including

UnitedHealth Group

(UNH), up 2.6% to $361.44,

Goldman Sachs

(GS), up 2.5% to 353.51, and

Home Depot

(HD), which has gained 1.6% to $284.41. They offset tech’s losses, and then some.

Is there anything really wrong with Apple and the other tech stocks? Not really. They’re still fine companies making lots of money. But the stocks in the Nasdaq are expensive—very expensive. MKM Partners’ Michael Dard notes that the index is trading at 31 times, well above where it was in the previous cycle. And with yields rising, that valuation is likely to come under pressure. The stocks and assets at most risk include the stocks in the Nasdaq-100 “trading with double-digit price/sales ratios,” special-purpose acquisition companies, stocks popular on Reddit, and cryptocurrencies.

“[All] all other things equal, higher discount rates will lower the discounted present value of future expected cash flows, Darda writes. “That could end up being a problem for stocks and sectors that are already trading at a premium to current discount rates and current liquidity levels.”

In fact, it might already be.

Write to Ben Levisohn at [email protected]

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