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Can Apple halt the tech rout?

Many of the Big Tech companies have already reported their latest quarterly earnings so far this week.

And the likes of Alphabet, Microsoft, and Meta have greatly disappointed markets.

Here’s how their respective shares fared during Wednesday’s session (October 26):

  • Alphabet: -11.11%
     
  • Microsoft: -9.22%
     
  • Meta: -7.13% (share prices fell even further, by as much as 20% after Wednesday’s close)


Apple too wasn’t spared from the selloff in tech stocks, though falling by a relatively lesser amount of 3.56% on Wednesday.

 

Attention now turns to Apple’s earnings due after US markets close today (October 27).

Here are the market estimates for some key line items due out of Apple’s financial results for its fiscal Q4 (July-September) period:

  • Revenue: US$ 88.64 billion (+6.3% year-on-year)
     
  • Earnings per share (EPS): $1.26 (+1.9% y/y)
     
  • Net income: US$ 20.4 billion

 

All eyes on the iPhone

Of course, given that the iPhone accounts for about half of Apple’s total revenue, much focus will be zoomed in on sales of its flagship product.

Keep in mind that the new iPhone 14 was launched during its most recent fiscal quarter, with sales of the new models beginning on September 16th. That’s a week earlier compared to the year prior (new phones only went on sale on September 24th back in 2021).

That extra week of sales should help contribute to the 9.77% year-on-year growth for iPhone sales alone, potentially hitting US$42.7 billion according to market forecasts.

However, the immediate road ahead might be bumpy, given news reports that Apple could slash production of this latest iPhone lineup by up to 6 million units in the second half of 2022, which could then erode the current quarter’s earnings.

 

Downside risks:

  1. Slowing China sales

China is the world’s largest market for smartphone sales, and accounts for about one-fifth of Apple’s total revenue.

Noting the stuttering post-pandemic recovery for the world’s second-largest economy, given Beijing’s insistence with sticking to its Covid Zero strategy while the rest of the world has moved on, such economic weakness could drag down overall sales and result in a lower-than-6.3% revenue growth.

 

  1. Strong US dollar

Many of these US tech giants derive their revenue from foreign customers, with sales denominated in US dollars.

Hence, a stronger greenback may make Apple’s products and services less affordable for its global customers. Recall that back the stronger dollar had already slowed Apple’s revenue growth down by 3 percentage points (from 5% down to 2%) back during its fiscal Q3 (April-June).

If the same foreign-exchange headwind is evident in the upcoming quarterly earnings release, that could be another drag on Apple’s stock prices.

 

How do Apple’s stocks typically react post-earnings?

The day immediately after Apple’s results are released have traditionally witnessed declines in its stock prices.

Apple’s stock has only registered a positive session 3 times the day after its past 10 earnings releases, despite posting upside earnings surprises every single time.

In other words, going by recent history since the pandemic, there’s only a one-in-3 chance that Apple’s stock climbs the day after its earnings announcement.

As things stand, markets are forecasting a 5% move, either to the upside or downside, when US markets reopen for trading on Friday, October 28th – the day after Apple’s imminent earnings release.

Massive Apple set to influence broader US stocks

 

From a technical perspective …

Apple could retest its immediate resistance around the $152.60 mark. That price area is also where its 50-day simple moving average (SMA) currently lies alongside the 50% Fibonacci retracement level from its summer surge. That key Fibonacci level had already repelled prices just a couple of days ago.

Stronger resistance is then set to arrive around its 200-day SMA around $157, with the next Fib line just lying slightly further up north at $158.16.

On the other hand, another set of discouraging results from yet another tech giant may even drag Apple into the low-$140 region, where multiple support/resistance levels can be seen.

Still, Wednesday’s declines for Apple’s stocks indicates that shareholders had been forewarned and took their cues from other gloomy tech earnings in recent days.

That suggests that the immediate downside for Apple’s stocks could be limited, with its year-to-date declines now standing at 15.9%.

 

Massive Apple set to influence broader US stocks

Note that Apple is the largest US publicly-listed company, with a market cap of US$2.4 trillion.

Given its heft, how markets react to Apple’s upcoming earnings could have an outsized impact on benchmark stock indices such as the S&P 500 and the tech-heavy Nasdaq 100.

Here’s how much weight Apple’s stock carries on these respective indexes:

  • Apple alone accounts for 7% of the S&P 500’s US$33.62 trillion market cap
     
  • Apple alone accounts for 18% of the Nasdaq 100’s US$13.36 trillion market cap
     

In light of its sheer size, a positive surprise out of Apple’s earnings could help bring some relief for in US equities, as macro-economic woes continue to weigh on global risk appetite.

And the opposite is set to be true as well. Another lacklustre showing by this tech behemoth could heap more downward pressures on US equities as a whole.

 

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