Apple (APPL:NASDAQ) shaves off $230 billion in market cap since September, raises questions on earnings expectations

Apple (APPL:NASDAQ) shares bounced back, but the tech giant is still negative since September. Wall Street’s largest stock rallied by 2%, closing at $143.73 at the end of the trading session on Thursday. Shares of Apple have clawed their way back from the previous day’s dip on reports that it would cut iPhone production in response to a shortage of chips.

Shares of the tech giant have slipped by 9% within the last month, shaving off about $229 billion in market cap. This amount is equivalent to the market cap of 94% of the S&P 500 companies according to data from CNBC.

Apple has been a shadow of its 2020 self, an ominous fact when the share performance is compared to the likes of Alphabet Inc. (GOOGL:NASDAQ), Microsoft (MSFT:NASDAQ), and Facebook (FB:NASDAQ) which have scored impressive gains this year. Both stocks have risen by 61%, 36%, and 20% respectively, compared to Apple’s paltry 8.3%. With the S&P 500’s currently at 18.1% gain YTD, Apple may be regarded as one of the surprise underperformers of the stock market this year.

The stock started the year on a cooler than expected note compared to its blistering pandemic year. The stock suffered a steep decline in March, dipping declining by 27% from its late January peak. Apple started picking again in June in the run-up to its 4-for-1 share spilt in August which allowed many investors to lock in at ‘cheaper prices’.

Since September, Apple shares have been on a downhill. The recurring questions about Apple’s capacity to sustain its revenue growth are back to haunt the stock again. Perhaps this time it may be stickier than first thought.

The company is battling with supply chain issues to deal with due to a shortage of components from partners such as Broadcom (AVGO:NASDAQ) and Texas Instruments (TXN:NASDAQ). Apple is reportedly telling manufacturing partners that the total number of new iPhones to be produced for the December quarter is likely to be lower than the initial estimate of 90 million. At the company’s last earnings call in July, CEO, Tim Cook, had warned that “supply constraints” will affect sales of the iPhone and iPad.

Apple is also in a sector which would look less attractive to investors when the Fed Reserve raises interest rates by November. The just-released summary of the September FOMC meeting, states that the United States central bank could begin reducing the pace of its monthly asset purchases as soon as mid-November. The Fed’s tapering process could see a monthly reduction of $10 billion in Treasurys and $5 billion in mortgage-backed securities.

Rising yields, coupled with higher inflation expectations, have made tech stocks like Apple look less palatable to investors because future profits are worth less and sky-high valuations are more difficult to justify.

The stock which has been regarded as a safe haven by portfolio managers who saw the stock as a way of preserving cash is now very much unlike its attribute. With the stock currently trading below its 50-day moving average, it appears that Apple may be showing signs of a bearish undertone. Also, there is nothing new going on at Apple that is rekindling the interests of investors. Even the rumoured electric car project is currently a misfire until they actually produce something.

Apple however is still resilient and financially buoyant. The macroeconomic indices do not appear to have affected the fundamentals of the company. The chip shortage is not demand-driven but a supply chain problem.

The coming months and next year may be crucial to how investors perceive this stock. It is unclear how supply chain constraints would impact the company’s earnings, though it seems unlikely that dividends payout to shareholders would reduce for the first time in the sampan’s history.