I’m looking for another wild ride for Apple (AAPL) and consequently for the entire tech sector. Apple shares dropped another 3% on Thursday taking the two-day losses in the shares to almost $200 billion, (Yep, with a “B.” That brought Apple’s market cap to $2.9 trillion. Yep, with “T.”) A massive (Internet irony alert) rally on Friday took the shares up 0.35%. And I think that this coming week could be just as volatile.
Ho, hum, it’s a quiet week with nothing much going on. Oh, except for the meeting the Federal Reserve’s interest-rate setting Open Market Committee on Wednesday, July 26. Oh, and earnings from Microsoft (MSFT) and Alphabet (GOOG) on July 25, and Meta Platform (META aka Facebook) on July 26. Apple (AAPL) and Amazon (AMZN report on August 3.
Right now economists are projecting that the U.S. economy didn’t slip into a recession in the second quarter that ended on June 30. But those same forecasts are looking for a further slowdown in economic growth in the quarter.
On July 3 the GDPNow forecast from the Atlanta Federal Reserve Bank put second quarter growth at an adjusted annual rate of 1.9%. That’s down from the model’s 2.2% forecast on Jone 30. And that rate of growth would be a further deceleration from the 2.0% growth rate (that was an upward revision from a first estimate of just a 1.3% growth rate) in the first quarter and the 2.6% growth in the fourth quarter of 2020. The very recent downward revision in the GDPNow forecast is a result of a drop in private domestic investment growth to 8.8% from 10.4%.So now recession–good news–but a further slowdown in the economy–expected with the Federal Reserve raising interest rates. And a continued drop in company profits.
The Federal Reserve’s meeting on Wednesday, May 3, is a big story but it’s not the only story. There will also be earnings from Apple, Ford, Qualcomm, and Starbucks. The Federal Reserve is very likely to raise interest rates another 25 basis points on Wednesday. The CME FedWatch Tool puts the odds at 83.9%. That’s down from 89.1% on April 21 but up from just 47.1% on March 29. Unless the Fed is playing games with the market–they are such jokesters, aren’t they–I think we’ll get that 25 basis point boost. After all, it’s not like inflation has waved the white flag lately, right? The key for stock market direction, however, isn’t what the Fed does at this meeting but what the Fed says about future interest rate increases, or the lack thereof. The Goldilocks scenario that is supporting stocks at current levels is built on a relatively quick end to rate increases and then a relatively rapid pivot to interest rate cuts–by the end of 2023. Wall Street will be listening for anything that hints at that scenario in the Fed’s post-meeting statement. And stocks will rally if Wall Street thinks it hears anything to confirm its hopes. On Friday, the CME FedWatch Tool put the odds for a June 14 interest rate increase at just 26.8% and the odds that the Fed will put interest rates on hold at 62.2%. There’s enough wiggle room in those odds to convince me that the market isn’t all that certain about the Fed ending interest rate increases at that meeting.The other story this week is earnings.
Shipments by all PC makers slumped 29% in the first quarter to a level below that in early 2019, according to tech market analysts at IDC. Lenovo Group and Dell Technologies registered drops of more than 30%, while HP (HPQ) was down 24.2%. No major brand was spared from the slowdown, with Asustek Computer Inc. rounding out the top 5 with a 30.3% fall. But Apple (AAPL)let the plunge with personal computer shipments down by 40.5% in the first quarter.
Ok, so Dan Ives is talking his book (or sector at least) but he still raises an interesting point. (Dan Ives is a Managing Director and Senior Equity Research Analyst covering the Technology sector at Wedbush Securities since 2018.) With bank stocks in particular and the financial sector in general in turmoil, will investors looking for steady earnings turn to tech stocks? (Well maybe not all tech stocks but how about Apple (AAPL) and Microsoft (MSFT)?
Today’s Quick Pick is Apple (NASDAQ: AAPL). For this Quick Pick, I’m suggesting you wait to buy until Apple falls to around $140 (which I think is coming.) Apple, like many tech stocks, is a seasonal stock, and we’re currently in one of the company’s traditionally weaker quarters. The Christmas buying quarters (the last two quarters of the year) are when Apple brings in the most revenue, and the first two calendar quarters are generally weaker. Apple took a hit during the big downward turn on the bear when all tech stocks were hit, but the stock recovered strongly during this early 2023 rally. If shares get down to $140, that’s a great place to get in before Apple announces new technology and updates to its product line. There are rumblings of an Apple VR headset announcement coming soon and we know that we’ll see new iMacs and Powerbooks. We can also look forward to the Apple Developer Conference in May and new product announcements in September. If you can get this cheap in the first half of the year, you can look for a big recovery in the second half of the year.
I expect technology earnings to hold center stage as investors and traders wait for the Federal Reserve to speak on interest rates next week on Wednesday, February 1. I think what companies say about expectations for revenue and earnings for the first quarter of 2023 will be more likely to move stocks significantly than what they report for the fourth quarter.
Today I posted my two-hundred-and-twenty-fifth YouTube video: Get Ready for the Tech Earnings Flood. This week is a bit of a breather. Last week ended with bank earnings and next week begins the flood of tech stock earnings. This week we’ve got Alcoa, which used to be a market indicator but that is no longer the case (thankfully, since Wall Street estimates have them at a loss of $.75 for this quarter.) Netflix is up next on Thursday, January 19. Netflix (NASDAQ: NFLX) will show +$.44 this quarter versus +$1.33 last year at this time. I think this will likely be the trend with tech stocks. Lower earnings and slower revenue growth year-over-year. 2022 has been tough for technology companies and earnings will likely be lower for the fourth quarter than in 2021. Look closely at future estimates and guidance. Where are they going from here? (the bad news for the fourth quarter is widely expected.) Microsoft will report earnings on January 24, shortly after announcing it will be laying off 10,000 employees. After that, we’ll get Apple (NASDAQ: AAPL), on January 26, and then the floodgates open with more and more technology companies announcing earnings and setting the tone for the stock market at the start of 2023.
Today I posted my two-hundred-and-twenty-second YouTube video: Caution! Technology Margin Shake-Up Ahead!
This starts off as an Apple (NASDAQ: AAPL) story. Apple recently announced that it would be moving away from using Broadcom (AVGO) chips for Wifi and Bluetooth in its iPhones, and begin using its own chips in 2023. This will of course make for better margins for Apple and speed up the company’s ability to implement new technology. This is a big blow for Broadcom which relies on Apple for 20% of its revenue. Apple also announced it’ll be moving away from QUALCOMM as they project it will have Apple chips to replace the QUALCOMM modem chips by late 2024-2025. (We’ve heard this before. And Apple had to call off the switch because of technology glitches.) You can expect more technology (and other) companies to shake up their own product designs and supply chains as they look at inflation and costs. Corporate profits have been at historic highs protecting profit margins at current levels won’t be easy.
News, rumor, and speculation from the Consumer Electronics Show point to a second half of 2023 launch for Apple’s (AAPL) AR “metaverse” headset. Apple has been “launching” this high-performance AR headset since 2017 but plans for a launch were put off in 2020, 2021, and 2022. The launch has even slipped in 2023 from plans to introduce the headset in January with the product shipped later in 2023. But now it looks like a spring announcement
Apple (AAPL) shares fell 2.63% today on estimates that Covid-lockdown turmoil at Chinese iPhone supplier Foxconn Technology could result in a production shortfall of 6 million units of the company’s iPhone Pro. And there’s a chance that production shortfalls could grow if Foxconn can’t get workers back to its assembly lines. The Put option on Apple that I bought back on October 12, 2022, jumped 59.79% today to $136 for a contract on 100 shares. But this option with its strike price of $135 expires on December 16. Which means that I’m running into that good old-time decay problem. If the stock, which closed at $144.22 today, doesn’t fall below $135 by December 16, then this option will expire worthless.
