Last week those who keep an eye on the stock market saw some interesting news: Microsoft, Intel, and IBM were up, while Apple and Google — the recent darlings of tech investors — lost ground. Of course that caused all sorts of speculation, and analysts were out in force to explain and extrapolate.

The stock market is a volatile thing, particularly in these “interesting times” in which we live. One day’s movement likely means very little. Still, it is fun for amateur analysts to attempt to discern what’s behind the market’s ups and downs, and professionals stake their reputations and livelihoods on being able to look at those movements and predict what’s going to happen in the future.

Editor’s note: In a few hours after this post publishes, Apple will be announcing their earnings for the fourth quarter of 2012. The market’s reaction to this new information should prove interesting to the topic under discussion.

Follow the money

It’s easy to say it’s all about the quarterly earnings reports, and those numbers were certainly helping to drive the market last week. But it’s not just about raw numbers, it’s also about expectations. One of the pitfalls of outrageous success is that by performing exceptionally well at one point you set impossibly high standards for your future performance. Google and Apple are in that position now. And when you’re the star of the show that is expected to bat 1,000 every time and you don’t, fickle investors act out their disappointment on the Street.

Google’s decline in advertising revenues brought their earnings down and led to their 8.4% loss, which translated to over $17 billion in market cap. Ouch. Apple’s less dramatic losses (1.7%) weren’t based on an earnings report, though.

Why stocks fall

Anyone who has studied business knows that the stock market is based on supply and demand. When more people buy, stock prices rise. When more people sell, stocks fall. The big question is: Why do people buy or sell? While earnings might generally be the most important factor, it’s by no means the only one.

In the case of Apple, there are a number of possible reasons for investors to sell, including:

Steve Jobs’s death: Apple’s stock took an unsurprising hit when their longtime leader died of cancer in October. Jobs was a charismatic figure and was perceived as the genius who was almost single-handedly responsible for Apple’s huge success. Losing Jobs left the company looking like a ship without a captain, regardless of what the true situation might be. Recent stock losses could be attributed to long-term effects of that loss. Would Microsoft experience the same thing if something happened to Steve Ballmer? I don’t think so. Ballmer isn’t seen as having the same sort of iron-fisted control over his company as the other Steve. Ballmer runs Microsoft. Jobs was Apple.
Falling out of favor: This is purely anecdotal evidence, but I hear a lot less awe expressed over Apple products now than I did even just a year ago. It seems as if the shine is wearing off the Apple. Despite strong sales, in many circles, the iPhone is considered “yesterday’s news” and is no longer the coolest must-have device. Meanwhile, Android devices continue to be wildly popular, and Windows Phone is gaining more and more praise (although, as yet, not much in the way of sales — but I think that’s because many potential buyers are playing the waiting game).

As for Google, the company has a hit in Android but also has taken it on the chin in a few areas over the last couple of years. After well-publicized accounts of Google’s collection of private information from wi-fi networks by its StreetView cars, public confidence started to erode. Scott Cleland’s book, Search & Destroy, accused the company of pushing a political agenda and using unethical tactics while hiding behind their “Don’t be evil” slogan. A number of failed products and services (such as Google Wave and Google Buzz) gave the company a reputation for having its fingers in too many pies and for having a habit of just “throwing everything against the wall to see what sticks.”

The element of surprise

Microsoft, of course, has already lived through what Google is going through now: the antitrust lawsuits and the accusations of being bent on world domination. It’s all old hat. But why are investors suddenly feeling the love again?

Microsoft’s stock rose not just because they reported solid earnings but also in part because of the element of surprise. After being written off by many as a “failing company,” Microsoft went beyond what was expected. That’s one way to make the market sit up and take another look.

Microsoft and Intel (“Wintel”) were supposedly on their last legs due to the untimely “death of the PC” that has been so widely reported. Could it be those companies are a bit more resilient than anyone thought?

When it comes to Microsoft, the signs have been there for a while: Thanks to their enterprise business, Office, and Xbox/Kinect, Microsoft has been delivering consistent profits and increased revenue. But perhaps even more important, for the first time in a while, there is true excitement building around Microsoft products. In addition to the potential for Kinect to expand beyond gaming, there is heavy interest in the next generation of Windows Phone (spurred by the impending release of Nokia’s Lumia 900) and high hopes of making a big splash in the tablet market with Windows 8.

This year could see the release of a number of additional Microsoft products across the company’s divisions. Many are looking forward to the improvements in Windows Server 8 and the new ReFS file system. Internet Explorer 10 will be touch-enabled on Windows 8. The next version of Office (Office 15) is anticipated in late 2012 or early 2013, and although we don’t know much about it yet, it’s expected to be optimized for the Metro interface.

Will it last?

Is all this enough to keep Microsoft’s stock on an upward course? If I knew the answer to that, I’d be playing the market for a living instead of writing these articles. It’s still anybody’s guess.

Forbes says 2012 is going to be a crucial period for Microsoft, and it predicts that Windows sales will increase significantly when Windows 8 is released. On the other hand, various bloggers argue that Windows 8 doesn’t matter and even that the company is in danger of failing completely. I tend to put more stock (pun intended) in Forbes’ analysis than in that of unknown bloggers, but in the market, as in horse racing, there are no sure things. One thing is certain: this should be a wild and woolly year for Microsoft watchers.

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