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Most tech stocks are having a painful 2022. Relatively speaking, Apple is doing well.
Sascha Steinbach/Getty Images for Apple
While the
Nasdaq Compound
is having a bad start to 2022, it cannot blame its most influential component:
Apple
.
With the technology sector accounting for around 50% of the index, the Nasdaq is a proxy for US-listed technology. And it’s fallen more than 11% this year, putting it firmly in correction territory.
The Nasdaq is weighted by market capitalization, so movements among its major constituents have the most influence. But it’s not a decline of the biggest tech giant that’s dragging the index down.
Apple
(ticker: AAPL) – the world’s most valuable public company, with a market capitalization approaching $3 trillion – is the largest constituent of the Nasdaq, and it had fallen less than 5% so far this year , at Monday’s close. This means that Apple’s relative outperformance actually added strength to the Nasdaq.
Apple shares rose 1.6% to $171.62 in the latest trades. The Nasdaq Composite rose 2%.
There are a few major factors as to why tech stocks as a whole have fallen so hard.
Chief among them is the fact that, in the face of historically high inflation, the Federal Reserve will soon begin raising interest rates and tightening monetary policy. This helped spur a rally in longer-dated bond yields; the yield on the benchmark 10-year U.S. Treasury rose above 2% again on Tuesday, after breaking that key mark for the first time since 2019 last week. (Bond prices and yields move in the opposite direction.)
Higher bond yields tend to hurt tech stocks more than others. Since these companies typically bet on innovation and growth, their stock market valuations are betting on the prospect of earnings in the years to come. Higher yields reduce the discounted present value of future cash, making high technology valuations less acceptable.
A look inside the Nasdaq reveals plenty of red. Dozens of small businesses have lost more than 60% so far this year, according to FactSet data. A number of very large ones, such as
netflix
(NFLX) and
Facebook
relative
Metaplatforms
(FB), are down about 35%.
Changing business trends also play a role.
Netflix, a key beneficiary of the Covid-19 pandemic as millions of people confined to their homes have spent more time streaming entertainment, looks a little less bright amid slower growth. Meta’s recent disastrous quarterly results caused it to lose more than a quarter of its market capitalization in one day due to headwinds on its advertising business and fears that users were fleeing its platforms.
By comparison, Apple looks like a winner. The iPhone maker’s latest quarterly results showed sales and earnings well above Wall Street expectations. The reaction was so good that it supported stock index futures for the next day.
Apple now trades more like its peers in the
Dow Jones Industrial Average,
an index of 30 US companies that make up the core blue chip stocks. Apple’s year-to-date declines correlate much more closely with the Dow’s 5.5% slide in 2022 than the Nasdaq’s slide into correction.
And it also outpaces most of its tech giant peers. Far from the disgrace experienced by Netflix and Meta,
Microsoft
(MSFT),
Alphabet
(Google T
Amazon.co.uk
(AMZN) – which complement traditional Big Tech stocks – have fallen around 12%, 6% and 7% so far this year, respectively.
Wall Street’s outlook for Apple is, in turn, bright.
Analysts at investment bank Tigress reiterated their strong buy rating on Apple shares and raised their price target on the stock to $210, implying an upside of around 25%.
“Strong product demand, new product launches and accelerating service revenues combined with an improved supply chain should drive another year of record performance,” the Tigress team said.
Analysts cited Apple’s record quarterly revenue as evidence of continued strong customer demand, with advancements in the payments space being a place for growth.
“Apple’s industry-leading position and strong brand equity, driven by its capacity for innovation and powerful cash generation, will continue to generate increasing return on capital, driving the continued growth of economic profit and the creation shareholder value,” Tigress analysts said. “We believe there is further upside in equities.”
Write to Jack Denton at [email protected]
