Why is this bad news for the entire market when Apple has such a big drop
Apple stock is down more than 8% this week, sending its value down nearly $200 billion, and the Dow and Nasdaq indices down. Apple is now officially in a bear market along with other tech giants.
Apple slumped during a bad week for stock markets, which are selling stocks in nearly every industry on fears of a Fed rate hike, weak consumer confidence, rising inflation, and supply chain challenges around the world. The Nasdaq Composite is down more than 7% so far this week and is on track for a six-week straight loss.
Apple faces some supply chain challenges, but the outlook for its business has not changed significantly this week.
The company is usually seen as a “safe” place for investors to deposit their money. The fact that it is selling along with everything else is a bad sign for other stocks, and a sign of deteriorating investor confidence.
Jeff Degraaf of Renaissance Macro Research told CNBC Thursday that in a bear market, there is nowhere to hide — and that includes Apple.
“For tech, when they start to take the lead in tech, it’s a better sign that they’re starting to take it all,” DeGraff said.
“Our assumption is that the AAPL sale will continue, not because we know anything about iPhone shipments or service revenue for the quarter, but because we believe that once investors start selling top names, it is rarely done in one day,” Nick Colas, Co-Founder for Datatrek on Thursday.
It’s a marked reversal from last November, when shares of high-growth tech companies began to decline and Apple often attracted investors seeking a less risky bet on technology.
Apple still has massive cash flow, which enables it to withstand the slowdown and return profits to shareholders. It generated $28 billion in operating cash flow in the March quarter, with total sales of $97.3 billion. It said it spent $27 billion during the first quarter to buy back its shares and pay dividends.
Weak consumer confidence didn’t start to hurt iPhone sales — in fact, in the March quarter, every Apple company except iPads (which Apple blamed on a lack of chips) grew.
When CEO Tim Cook was asked about the effects of macroeconomic conditions and inflation on its business in an earnings call last month, he said the company’s biggest problem is producing enough iPhones and Macs to meet global demand — not a demand slowdown.
“Right now, our main focus, frankly, is on the supply side,” Cook said.
But even if Apple begins to feel the effects of deteriorating macroeconomic conditions, it remains a company with a world-renowned brand, excellent profit margins, stores in major malls, and an array of related products and services that attract affluent consumers around the world.
If growth slows, Apple will continue to generate massive profits and sales — even if it is no longer the most valuable company in the world.