Apple loses $800 as tech stocks plunge

After briefly surpassing $3 trillion in January, the iPhone maker lost more than $800 billion in market capitalization as tech stocks plunged. As fears grow that interest rate hikes by the Federal Reserve could tip the United States into recession, the $2 trillion milestone looks precarious. Apple closed Tuesday at $2.15 trillion.

“In the same way that Apple benefited from the Fed-fueled bull market, it will suffer as low interest rates and quantitative easing subsidies fade,” said David Trainer, chief executive of the company. investment research firm New Constructs.

Economists predict the Fed will raise interest rates on Wednesday by at least half a percentage point, with some predicting a 0.75 point increase following stronger-than-expected inflation data on Friday. Further increases are expected this year. All of this could worsen the sell-off in tech stocks, which are particularly vulnerable to rising interest rates as they weigh on the current valuation of future corporate earnings.

The FAANG cohort – Meta Platforms Inc., owner of Facebook, Apple, Amazon.com Inc., Netflix Inc. and Alphabet Inc., parent company of Google – was the star of the two-year bull market, rallying at breakneck speed to change historical valuations. . That quickly evaporated this year, with the group losing a combined $2.6 trillion market value as investors fled growth names for safer assets. Amazon is also on the verge of falling below $1 trillion.

Analysts also turned cautious. Over the past three months, they have cut their estimates for Apple’s third-quarter earnings by 7.8%, according to data compiled by Bloomberg. Revenue forecasts are down about 4.2% over the same period. The stock also has the lowest share of analyst buy ratings in more than a year.

KeyBanc Capital Markets sees signs of slowing US demand, citing credit card data spending. Others have raised concerns about the company’s app store revenue growth rate, with Morgan Stanley adding that poses risks to its estimates for Apple’s Services business. According to data compiled by Bloomberg, Apple earned 18.7% of its fiscal 2021 revenue and more than 30% of its gross profit from services.

Apple’s stock market troubles intensified this year with a 24% drop and Saudi Aramco snatching its title as the world’s most valuable company. Aside from the headwinds that have largely put pressure on tech stocks – rising interest rates, slowing economic growth and soaring inflation – the tech giant is also facing supply constraints. related to Covid restrictions in China. In April, it warned it could suffer a revenue drop of $4 billion to $8 billion in the current quarter.

History shows that it can take years for tech stocks to recover to the highs set in raging bull markets, assuming they ever do. Cisco Systems Inc., a star of the tech frenzy of the late 1990s, is still 46% below its all-time high of March 2000.

“I would say if an investor doesn’t own those names, then it’s an opportunity to add positions,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott, which owns about $130 billion in assets. assets. “However, there are always names that lead to certain eras, but then it takes years for them to regain their all-time highs. Just because they will continue to grow doesn’t mean those names will regain their former leadership.”

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