Apple has most certainly been known to be a rather defensive tech play for investors want exposure into tech while also enjoy the “safety” behind the inelastic demand of luxury goods. Considered to be a safe haven stock in times of volatility, Apple has most certainly held its worth for much of 2022 losing a little less than 25% of its share price at present. Even the likes of Amazon and Google can’t compare as both are almost 40% off their highs at present hence Apple is still in the “lead”. (Alvin also shared insights here)
However, just last week, investors have started to cast doubts over Apple as many are wondering if their stock price is just “waiting” to fall as much as their peers or if they truly belong a tier ahead of others.
In this article, I’ll be looking at some of the latest news surrounding Apple as well as my thoughts on how this stock will perform for the rest of the year.
3 Headwinds causing Apple’s recent sell off
Apple faced one of its worst weeks since 2020 having closed about 8% lower than the previous week. They faced 3 headwinds last week which could be the reason for the recent sell off.
1. Lackluster iPhone 14 Demand
Apple (AAPL) is said to have abandoned efforts to increase production of its iPhone 14 lineup by 6 million units in the second half of this year after lower-than-expected demand, according to a Bloomberg report on Tuesday citing unnamed sources familiar with the matter.
CNN
At the onset, I must say that such news don’t imply weakness to Apple’s share price. However it can be concluded that what’s priced in is more market sentiment than anything else.
Overall, while it’s difficult to verify the validity of such claims, it is still safe to say that demand is definitely a lot softer with the iPhone 14 launch as compared to the launch of other models.
According to a Bloomberg report on Tuesday, iPhone 14 sales are not strong enough to justify the increase in production. The report says that “an anticipated surge in demand failed to materialize.” In normal situations, Apple increases production at this time of year to meet the demand of the holiday season sales.
9to5mac.com
2. Inflation/Macroeconomic Factors
“Although Apple has been more resilient than most of its competitors and pre-orders and initial shipments of the latest iPhone 14 family have been strong, it seems the company is not immune from the broader macro-economic pressures facing many of the key markets where it operates,” said Ben Wood, an analyst at CCS Insight.
CNN
I must say that Apple will most likely disappoint with their sales this quarter not only due to inflationary concerns (which reduce the spending power of every consumer) but also the fact that the US Government is now FAR from giving out any stimulus payouts of sorts.
As such, the average consumer is now most likely to be worried about their everyday expenses going up rather than to ponder over an iPhone upgrade.
3. Downgrade by Bank of America
We all know that the ratings from analysts mean close to nothing on a long-term horizon however, there’s nothing stopping market sentiment from acting up in the short term.
Some stats to sum up the downgraded rating:
- 4.9%: how much Apple’s share price dropped after BofA’s downgrade on Sept. 29
- $160: BofA’s revised price target per share, down from $185
- $120 billion: how much Apple’s market cap lost in that one day
Apple’s Market Share in the US and Globally
We often find the loss of market share to be a leading indicator of a company in decline. In the case of Apple, they are indeed far from decline.
Despite stiff competition in recent years, they’ve managed to hold on to their market share as well as their position as the market leader in the US.
They also continue to hold about a fifth of the Global Smartphone Market Share.
What do the Fundamentals & Technicals say about Apple?
In terms of revenue, Apple has seen decades of unhindered growth with revenue increasing year on year even back in 2018. While Q4 of every year has always almost been best quarter for Apple, I speculate that this quarter would most likely be the quarter where the trend is broken. I attribute this to how inflation is still indeed out of control where once again, consumers need their basic needs to be met first before they think about splurging on new iPhone.
To this end, perhaps a quick look at the technicals may give investors a much-needed, unbiased opinion of the stock.
- Key resistance levels remain at $180.
- Key support levels remain at the psychological price of $100
- There appears to be somewhat of a disjointed channel forming where a series of lower-highs and higher-lows are formed. Any price action out of this channel may indicate further bullish/bearishness. Risk of price action retreating by a further 20% should it fall below current levels.
- RSI shows momentum falling over time which shows more weakness than strength in the chart.
Will Apple be a defensive play, or is there more room to fall?
As with the entire economy, we will need inflation to come under control in order for more bullish sentiment to enter the market. At present, it would seem that Apple may very much retest its support levels given the short-term weakness in its price action. Should no major catalyst present itself by the end of this month, it is likely that even festive sales may be muted.
On this note, Apple has time and time again proven investors wrong hence the narrative is still intact on a longer-term horizon. The biggest catalyst that we can look forward to in the near term would be their Q4 earnings.