[Market Recap] Market Moving MLK Day: Investors Shrug Off Apple and Eurozone

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From Seeking Alpha

Despite the US holiday, there is a plethora of market moving news which, on the surface, appears to be bearish. However, the old Wall Street adage is that it is not the news, but the reaction to the news, that matters. The market action on Monday is a textbook example of this sage advice.

Let's begin with Apple (AAPL) and Steve Jobs. The task of equating an individual's health with market impact is fraught with danger as good health is not something that can be priced - it is indeed priceless. It is a grand testament to the genius of Steve Jobs that the market would move at all upon news of his medical leave.

On Monday, Steve Jobs sent the following email to employees and the S&P futures promptly began to decline.

    Team,

    At my request, the board of directors has granted me a medical leave of absence so I can focus on my health. I will continue as CEO and be involved in major strategic decisions for the company.

    I have asked Tim Cook to be responsible for all of Apple’s day to day operations. I have great confidence that Tim and the rest of the executive management team will do a terrific job executing the exciting plans we have in place for 2011.

    I love Apple so much and hope to be back as soon as I can. In the meantime, my family and I would deeply appreciate respect for our privacy.

In an effort to respect Mr. Jobs' privacy, we intend to focus on the technical and "mechanical" impact of a decline in Apple's stock price. Once the announcement hit the wires, the S&P 500 futures began to decline.

As well, Apple's stock trading in Germany dropped over 8%.

Despite Apple being 20% of the market cap of the QQQQ ETF, the broader market is still holding strong.

Recall that when it was rumored Tim Cook was going to leave Apple, the stock dropped 20% only to rebound by day's end. Moreover, in this case, Steve Jobs will still be involved in the strategic decisions, which is his core competency. The tablet computer category that Jobs has dominated has reached critical velocity and Apple continues to be the clear leader. In our view, Tim Cook will have no problem navigating the strategic plans ahead. The resilience in the market supports our view.

Moving on to the rolling disaster that is the European debt crisis, the meeting Monday produced no discernible results and in response, the euro has resumed its decline. Our view has been, and continues to be, that until Europe develops a comprehensive solution, Europe will lurch from crisis to crisis.

The current solution is the EFSF, which has two large flaws in its structure. First, shifting the burden of debt during a debt crisis is not a solution - the economic drag of high debt levels will infect the healthy nations. The second flaw of the EFSF is that it relies on the infected countries to supply the money for the cure. Europe is quickly approaching the point where Germany is literally the buyer of last resort. We doubt that the German people and politicians will have the appetite for Germany to bailout the entire Eurozone.

The solution, as we see it, is a restructuring of the debt, which is a nice way to say defaults. Without a reduction in debt, the economic drag will be too much for the periphery to handle and the debt death spiral will accelerate.

However, the US markets seem to be unaffected by the ostensibly negative news. In an environment of high liquidity and cheap money, beating inflation is investor concern #1. When one looks around the globe for the best investment, the US equity market stands out. While the markets appear to be vulnerable technically, the reaction to negative news suggests further upside. We remain long US equities with a bias toward the material sector, with Freeport-McMoran (FCX) among our favorites.

By Brian Kelly