This week served as a reminder that what goes up too far often needs to come back down.
Apple had its third worst week in the market since the sharp March 2020 correction, down 3%, as the Nasdaq 100 underwent a sharp (and rare) pullback off its all-time highs. The drop could have been much worse, however. At one point as late as Friday morning, Apple reached a low of about 11% for the week.
Year-to-date, Apple is still up an astonishing 65%, and remains one of the best performing mega-cap stocks. During the same period, Apple has also outperformed the information technology (ticker $VGT) and consumer discretionary (ticker $VCR) sectors by at least 35 percentage points.
Here is what I believe to be the key factor helping to lift the stock in the early part of the past week:
- A wave of sell-side love flooded the system. According to data tracked by TipRanks, no fewer than 12 analysts came out with research notes, most of which bullish. Generally, these reports came accompanied by a bump in price targets needed to catch up with Apple’s soaring market value. Reasons cited to be optimistic about Apple included “strong iPhone demand, the potential for market-share gains against Huawei and Samsung, strong Mac and iPad sales, and acceleration of the services business”.
Apple’s week fell apart on Thursday and Friday for the following reasons:
- For a while now, it has become ever more obvious that stocks (and most investable assets, for that matter) had climbed too far and too fast. However, it was nearly impossible to pinpoint exactly when the market would witness a pullback, and how severe it could be. The Nasdaq 100 nearly entering correction territory in what would have been the shortest time frame ever seems to be much more closely associated with profit taking and fears of overvaluation than any other fundamental reason. Apple was not immune from this past week’s vicious “bear attack”.
- The stock split-driven rally lost steam fast, as Apple began trading at a nominal price of just over $125 per share on Monday (down from about $500 in the previous week). My concerns over loss of momentum proved justified, although it is hard to know how much of the stock’s late week selloff can be attributed to the phase out of the “split catalyst”.
- I expected Apple to send out its “save the date” invitation for the iPhone upgrade event this past week. It did not happen. The company has already anticipated that its 5G-ready smartphone will be delayed “by a few weeks” this year, but it is anyone’s guess how long it may be until the device hits the market. The longer the wait, the more bearish investors are likely to become.
Below is a chart that compares the performance of Apple stock against the S&P 500 and the industry. Apple’s dashboard still looks good over a longer-term horizon, but much less so from a trailing five-day perspective.
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The data used in this report was provided by Stock Rover. I have been impressed with the breadth and depth of information on markets, stocks and ETFs that this platform provides. Stock Rover also helps to set up detailed filters, track custom portfolios and measure their performance relative to a number of benchmarks.
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(Disclaimers: 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)