Yesterday, reports that Apple may reduce employment halted a two-day stock market advance, but why was this a surprising fact?
The two-day boom in the stock market was stopped yesterday by reports that Apple may slow recruiting, but why should this come as a surprise to anyone?
The United States contributes less than one third to Apple’s overall income. Other countries contribute the rest. According to FactSet, approximately 18 percent comes from China, while approximately a quarter comes from Europe.
Who among us would be surprised if revenue from Europe and China slowed down, especially following the covid lockdowns in China?
Should experts reduce their projections for Apple’s revenue and profit?
They had already revised their forecasts for the iPhone manufacturer’s third quarter (the period that would end in June) in April, bringing them down to $1.15 from $1.25, but they have not altered since then. In spite of the reduction, market watchers anticipate a solid nine percent increase in full-year earnings over 2022. Also being unchanged since April, the consensus estimate for the fourth quarter (which will be completed in September) is currently set at $1.31.
The fact that a highly bullish narrative is beginning to emerge around 2023 for Apple and much of the technology sector in general is one simple reason why there haven’t been any major cutbacks in the second half numbers.
In an overnight note to clients, Wedbush analyst Dan Ives said, “The Street is well aware of weakness this quarter and we believe ultimately is looking past June numbers to the September and December quarters with all eyes on the iPhone 14 production/demand cycle for the Fall staying on track.” “The Street is well aware of weakness this quarter and we believe ultimately is looking past June numbers to the September and December quarters,” Ives said.
According to Ives, “Apple is continuing to focus on a solid product pipeline and services ramp into 2023,” including what we predict will be the widely awaited introduction of an AR/VR headset.
Estimates of future profits for the S&P 500 index as a whole have likewise been very stable. In spite of concerns regarding inflation, an aggressive Federal Reserve, and the Russian invasion of Ukraine, analysts anticipate that earnings for the S&P 500 will increase by 10 percent this year. This projection is comparable to what was made three months ago.
Since two months ago, analysts have been predicting that the overall market will see apocalyptic levels of earnings, but this has not yet transpired.
We are now into the thick of earnings season, and despite certain banks and a few industrials’ (such as Fastenal) cautionary comments, the market is not plummeting to new lows.
The bulls say that the cautious earnings commentary will not significantly impact the narrative for three reasons:
1) The macroeconomic data has been or will be improving: the data does not support a recession, inflation is likely peaking, and the majority of the Fed rate hikes have been front-loaded, leading many investors to believe the Fed will now be cutting rates in 2023. The data does not support a recession because the data doesn’t support a recession, inflation is likely peaking, and the majority of the Fed rate hikes have been front-loaded.
2) A large portion of the increase in earnings for the S&P 500 is attributable to the performance of energy stocks; nevertheless, projections for several other industries (consumer discretionary, banking) have already decreased dramatically. Cathie Wood darlings like Spotify, Roku, Twilio, Shopify, and Zoom have all seen significant reductions in their earnings projections over the past three to five months.
3) Prices in many markets already reflect decreased profits expectations; the majority of speculative technology names have fallen by at least fifty percent from their highs, whereas the majority of large banks and large industrial companies reached new lows around two weeks ago.
As Dan Ives argues for Apple, the focus in this optimistic scenario is entirely on positioning ourselves for 2023.
Nevertheless, there is a considerable amount of time left till the fourth quarter and 2023. Along the way, the widespread opinion is that there is still a possibility of a retest of the lows coming in the months of August and September.
There is a large number of possible landmines along the path, one of which is the strength of the United States dollar, which is emerging as an additional headwind for international corporations.
During their respective results calls, IBM and Johnson & Johnson both brought up the potentially detrimental effects of a stronger currency.
