It's Your Money: News Moves Markets

What's good for the consumer isn't always good for the company. Apple (Nasdaq: AAPL) investors learned that on Wednesday, when their shares fell by 5 percent after the company announced an exciting lineup of new products, enhanced features, and lower prices.

Refreshed iPods and cheaper iPhones probably sound pretty good to you. However, there is a disconnect between consumer and corporate circles sometimes. Good news to one is often bad news to the other.

You see it everywhere. Airfares go up? Travelers don't like it, but the carriers do. Flat panel television prices go down? Couch potatoes love it, but the cutthroat manufacturers are left licking their wounds.

In a nutshell, news moves markets, but it's often a case of different forces tugging in different directions. As investors, it is important to know the difference. Apple's story is pretty well-known, so allow me to dig deeper into the story to illustrate the point even further.

Apple investors were reacting to several different assumptions. Clearly, lowering iPhone prices from $599 to $399 is a near-term margin hit for Apple. The phone didn't get 33 percent cheaper to make since it was introduced less than three months ago. However, investors take that morsel of news and flesh it out even further.

Why is Apple even cutting prices? Weren't folks camping out in sleeping bags to be the first ones to own an iPhone back in June? Yes, but cell phones are tricky. Most wireless phone users are tied to two-year contracts -- it's part of landing sweet deals on carrier-subsidized handsets -- so even a diehard Machead could still be several quarters away from migrating to an iPhone.

Apple announced that it would ship out its millionth iPhone by the end of the month. It's a healthy milestone, but coupled with the price cut leads cynical investors to wonder how many have been sold so far.

So Apple's stock got hit, of course. Then we have shares of AT&T (NYSE: T), the exclusive provider of iPhone wireless service. Surely the company behind AT&T/Cingular would take a hit given the bleak outlook, right? Well, yes and no. AT&T's stock fell, but it was just a 1 percent dip.

One reason for the smaller decline is that AT&T is a huge telecommunications company that isn't necessarily riding on the feast or famine of the iPhone. However, the price hit wouldn't have been much different if AT&T was all about the iPhone. Sure, Apple slashing prices hints at a slow adoption rate. However, with Apple willing to take a $200 hardware hit, the number of AT&T iPhone subscribers should pick up dramatically in the coming weeks.

We can take the Apple story one day later. As you might imagine, the original iPhone users weren't happy about the sharp price cut. Early adopters buy into new gadgets knowing that time will make them cheaper, but this all happened over the course of the summer season.

On Thursday night, Apple went ahead and apologized for the oversight. It would give many of the earlier buyers a $100 credit. Great news for consumers? Sure, but Apple's stock took a hit on the assumption that it will have to shell out between $20 million to $50 million to make things right.

Consumers? Happy.

Shareholders? Not so happy.

So, yes, news moves the market. Knowing it happens isn't enough. As an investor, you need to know why it's happening.
By Rick Munarriz