Apple, the world’s largest company by market capitalization, has come under intense selling pressure from early October onwards, losing its trillion-dollar valuation. Growing worries over iPhone demand, the firm’s key profit-earner, acted as the catalyst for the fall. Moving forward, there are some developments that may justify more pain for the stock by year-end.
A slew of analyst reports pointing to a year-over-year drop in iPhone unit sales as soon as the first quarter of 2019 were instrumental for the 24.3% fall in Apple’s stock from early October, when the share price hit a record high of $233.47. The retreat “officially” puts the stock in bear-market territory, which is defined as a loss in value that is equal to or more than 20%.
The corporation’s recent announcement that it will stop providing iPhone unit sales was also interpreted as a sign the firm knows that growth on this metric will head south. For the record, the number was used by analysts as a key gauge of Apple’s health. Moreover, bad omens keep flocking, as Foxconn, the biggest assembler of iPhones, warned of anemic demand for the device and flagged deep production cuts.
Expectations for slower demand in emerging markets were sided by Wall Street analysts to back their views for a gloomier outlook for the tech giant, with the high prices charged by the firm contributing towards that. And speaking of EM, China comes to mind.
Concerns over a Sino-US trade war are seen as denting Chinese consumer confidence, which in turn could act as a drag on iPhone demand. Furthermore, Apple could be hit if Chinese consumer sentiment takes an anti-American direction, with consumers instead turning to Chinese brands such as Huawei to satisfy their smartphone needs.
Remaining on trade, Apple may act as a barometer on the outcome of next week’s Trump-Xi meeting at the G20 summit. Namely, if a breakthrough that paves the way for a trade deal is accomplished, then Apple shares are likely to appreciate, and vice versa. The risks may be tilted to the downside though, in light of this week’s accusations of Chinese intellectual property theft coming from the US Trade Representative’s office, as well as the past weekend’s APEC meeting comments from US Vice President Pence. Specifically, Pence said the US is in no rush to end the trade conflict.
A ramp-up of tariff action would see Apple facing a dilemma: either pass on to customers the increased costs stemming from increased levies, which could translate into even weaker demand for its products, or accept lower margins, effectively absorbing the cost of taxes. Both are negative for its financial condition.
An interesting stat is that Apple lost more than $250 billion in market cap within a span of a few weeks. For perspective, it took the company three decades to reach the $250bn valuation milestone, while the extent of the decline is more astounding if one takes into account that tech behemoths such as Intel have a market cap that does not exceed a quarter of a trillion dollars.
Technically, Apple’s stock is looking negative in the short term. Indicatively, the RSI continues to decline in bearish territory. The fact though that the indicator has entered oversold territory below 30 suggests that the selloff may be overstretched, the implication being increased odds for a bounce back up in the near term. In terms of the medium-term outlook, that too is currently bearish, as evidenced by price action taking place well below the 50- and 100-day moving average lines, which increasingly look set to post a bearish cross soon.
A potential key area to the downside is the one around $170, which was relatively congested in the past and may act as support to losses. If it is violated, $160.63, the stock’s lowest since February would be eyed. On the flipside, a rebound could meet initial resistance around the $180.73 bottom, with a breach shifting the focus to the previously congested zone around $190. Further above, the possibly psychologically important $200 mark would be eyed.
It is of note that Apple’s shares continue to trade higher year-to-date, outperforming the equivalent performance of the S&P 500, the Dow Jones and the Nasdaq 100.
Overall and irrespective of how the Trump-Xi talks evolve at the end of November, Apple’s stock may be more likely to face additional pressure as we edge closer to the end of 2018 than not. This, given that investors will increasingly challenge the corporation’s ability to set prices; the company may soon have to choose between losing market share or deflating its profit margins. Having said that, there are other factors at play that may boost the stock. To name a few, the recent selloff may spur “buying-the-dip” behavior, or a seasonal “Santa Claus” rally could materialize, lifting Apple and equity markets in general.
Despite the near-term picture looking mired with challenges, it bears mention that the company has the capacity to rebound in the longer-term. Its conglomerate capabilities give it the flexibility to do so, evolving into an even more sustainable business moving forward. Particularly, the corporation’s services segment has expanded rapidly in recent quarters and appears to have great potential. Apple itself expressed willingness to continue investing on this front, which is a good sign as it acknowledges that it is not sustainable to continue expecting ever increasing iPhone sales. Moreover, under the assumption that economic reasoning will eventually prevail, pushing the US and China towards an agreement on trade sooner or later, then more upside looks to be in store for the firm. The corporation’s next earnings report is due on January 30.
Apple, the world’s largest company by market capitalization, has come under intense selling pressure from early October onwards, losing its trillion-dollar valuation. Growing worries over iPhone demand, the firm’s key profit-earner, acted as the catalyst for the fall. Moving forward, there are some developments that may justify more pain for the stock by year-end.
A slew of analyst reports pointing to a year-over-year drop in iPhone unit sales as soon as the first quarter of 2019 were instrumental for the 24.3% fall in Apple’s stock from early October, when the share price hit a record high of $233.47. The retreat “officially” puts the stock in bear-market territory, which is defined as a loss in value that is equal to or more than 20%.
The corporation’s recent announcement that it will stop providing iPhone unit sales was also interpreted as a sign the firm knows that growth on this metric will head south. For the record, the number was used by analysts as a key gauge of Apple’s health. Moreover, bad omens keep flocking, as Foxconn, the biggest assembler of iPhones, warned of anemic demand for the device and flagged deep production cuts.
Expectations for slower demand in emerging markets were sided by Wall Street analysts to back their views for a gloomier outlook for the tech giant, with the high prices charged by the firm contributing towards that. And speaking of EM, China comes to mind.
Concerns over a Sino-US trade war are seen as denting Chinese consumer confidence, which in turn could act as a drag on iPhone demand. Furthermore, Apple could be hit if Chinese consumer sentiment takes an anti-American direction, with consumers instead turning to Chinese brands such as Huawei to satisfy their smartphone needs.
Remaining on trade, Apple may act as a barometer on the outcome of next week’s Trump-Xi meeting at the G20 summit. Namely, if a breakthrough that paves the way for a trade deal is accomplished, then Apple shares are likely to appreciate, and vice versa. The risks may be tilted to the downside though, in light of this week’s accusations of Chinese intellectual property theft coming from the US Trade Representative’s office, as well as the past weekend’s APEC meeting comments from US Vice President Pence. Specifically, Pence said the US is in no rush to end the trade conflict.
A ramp-up of tariff action would see Apple facing a dilemma: either pass on to customers the increased costs stemming from increased levies, which could translate into even weaker demand for its products, or accept lower margins, effectively absorbing the cost of taxes. Both are negative for its financial condition.
An interesting stat is that Apple lost more than $250 billion in market cap within a span of a few weeks. For perspective, it took the company three decades to reach the $250bn valuation milestone, while the extent of the decline is more astounding if one takes into account that tech behemoths such as Intel have a market cap that does not exceed a quarter of a trillion dollars.
Technically, Apple’s stock is looking negative in the short term. Indicatively, the RSI continues to decline in bearish territory. The fact though that the indicator has entered oversold territory below 30 suggests that the selloff may be overstretched, the implication being increased odds for a bounce back up in the near term. In terms of the medium-term outlook, that too is currently bearish, as evidenced by price action taking place well below the 50- and 100-day moving average lines, which increasingly look set to post a bearish cross soon.
A potential key area to the downside is the one around $170, which was relatively congested in the past and may act as support to losses. If it is violated, $160.63, the stock’s lowest since February would be eyed. On the flipside, a rebound could meet initial resistance around the $180.73 bottom, with a breach shifting the focus to the previously congested zone around $190. Further above, the possibly psychologically important $200 mark would be eyed.
It is of note that Apple’s shares continue to trade higher year-to-date, outperforming the equivalent performance of the S&P 500, the Dow Jones and the Nasdaq 100.
Overall and irrespective of how the Trump-Xi talks evolve at the end of November, Apple’s stock may be more likely to face additional pressure as we edge closer to the end of 2018 than not. This, given that investors will increasingly challenge the corporation’s ability to set prices; the company may soon have to choose between losing market share or deflating its profit margins. Having said that, there are other factors at play that may boost the stock. To name a few, the recent selloff may spur “buying-the-dip” behavior, or a seasonal “Santa Claus” rally could materialize, lifting Apple and equity markets in general.
Despite the near-term picture looking mired with challenges, it bears mention that the company has the capacity to rebound in the longer-term. Its conglomerate capabilities give it the flexibility to do so, evolving into an even more sustainable business moving forward. Particularly, the corporation’s services segment has expanded rapidly in recent quarters and appears to have great potential. Apple itself expressed willingness to continue investing on this front, which is a good sign as it acknowledges that it is not sustainable to continue expecting ever increasing iPhone sales. Moreover, under the assumption that economic reasoning will eventually prevail, pushing the US and China towards an agreement on trade sooner or later, then more upside looks to be in store for the firm. The corporation’s next earnings report is due on January 30.
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