At the beginning of this week, inflation fears shook investors, dragging the whole market down, specially big tech giants. Apple shares had three days in a row trading lower, reaching $122 on Wednesday. However, the stock managed to end the week trading at $127, down 2% in the past five days.
Below, the Apple Maven discusses the main topics along this week.
Apple stock re-enters correction
On Monday, May 10, Apple lost 2.5% of its value. This was Apple's first down day in the past four trading sessions (not bad), but also its sixth in the past ten (definitely not great).
The key events moving Apple stock this Monday were likely broad-based, not company-specific. Here is a short list of them.
- TheStreet reported that a surge in crude oil prices reignited inflation concerns, sending yields higher and causing TIPS (inflation-linked treasuries) to outperform nominal bonds. This sort of movement tends to be a bearish cocktail for growth tech names, like Apple.
- Wall Street did not help much, when Goldman Sachs issued a highly-skeptical report on FAAMG stocks. According to the bank, there are at least a handful of reasons why Big Tech shares could underperform, ranging from (1) antitrust intervention to (2) an increase in corporate and capital gains taxes and (3) rising interest rates.
- It is possible that the labor market debacle might have impacted the general mood in the market. After Friday's US jobs report failed to impress, President Joe Biden sounded less generous than usual about government support for unemployment benefits. Doubts over fiscal stimulus could be bearish for stocks.
Inflation fears send Apple to August 2020
A sequence of daily losses has pushed AAPL stock deeper into correction and sent it back to August 2020 levels. Here is the key reason why.
While the Apple vs. Epic Games battle rages on and cautious Wall Street research reports continue to pour in, the big force behind Wednesday's bearish price action (in Apple shares, stocks in general and even non-equities markets) was fear of rampant inflation.
As reported by TheStreet:
Stocks [fell] sharply Wednesday after consumer prices in the U.S. jumped in April by the most since 2009 and added to concerns the Federal Reserve could lift interest rates sooner than it has signaled.
Generally speaking, higher inflation tends to lead to higher longer-term interest rates – note that the short end of the yield curve is more easily controlled by the Federal Reserve. Increased rates hurt growth and tech stocks in particular.
Latest hot takes from Wall Street
Wall Street analysts remain bullish on Apple stock, but the tone has turned a bit more cautious lately. Wedbush’s Dan Ives continues to be the most upbeat Apple analyst. His price target of $185 per share is tied with Raymond James’ as the highest on the Street.
On Monday, May 3, Wedbush looked at the Apple vs. Epic Games ongoing legal battle. Dan Ives believes that Apple will end up a winner, eventually putting to rest some of my own concerns on the matter. Here is his quote:
“Apple has successfully defended its App Store moat again and again with this time being no different in our opinion.”
Morgan Stanley’s Katy Huberty reiterated her buy rating the very next day, with a price target of $161. However, her narrative sounded a bit more bearish than bullish this time. The analyst scaled back on her short-term expectations for App Store sales, citing quicker-than-anticipated growth deceleration.
“We are now incorporating a slightly lower App Store net revenue growth rate in the near-term to account for softer-than-expected April 2021 App Store net revenue growth. App Store net revenue slowed faster than we had expected.”
Evercore ISI’s Amit Daryanani is even more hopeful about the upside in Apple stock, having a $175 price target on the shares. However, in addition to sharing concerns on the App Store, he also mentions tough iPhone comps leading to growth deceleration in Apple Care – as both tend to be correlated.
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)