Stocks fell today, hinting at a potential retracement to start 2024 following a year that saw the S&P narrowly miss setting a new record high. The S&P dropped 0.5%, while the Dow Jones Industrial Average managed a modest gain of about 0.1%, or roughly 60 points through noon. The tech-heavy Nasdaq Composite led today’s losses with a drop of around 1.5%.
This downturn comes after a rally that propelled stocks to solid annual gains in 2023, with the S&P marking its ninth consecutive weekly gain, its longest winning streak since 2004. The index is also edging closer to surpassing its all-time high closing of 4,796.56.
Tech stocks, in particular, faced a downturn after Barclays analysts downgraded Apple, citing reduced demand expectations for new iPhones. Apple’s shares dropped by 1.7%, contributing to the tech sector’s overall decline.
Barclays analyst Tim Long adjusted Apple’s rating from “Equal-Weight” to “Underweight,” slightly decreasing the price target from $161 to $160. Long anticipates a 17% decline in Apple’s share price this year, stating, “We expect reversion after a year when most quarters were missed, and the stock outperformed.” Long attributes Apple’s share price rise amid revenue declines to extensive stock buybacks.
Long further commented, “We are slightly lowering our AAPL estimates following another round of checks. We are still picking up weakness on iPhone volumes and mix, as well as a lack of bounce-back in Macs, iPads, and wearables.” He highlighted a downturn in demand for the iPhone 15 from China, with developed markets also remaining weak.
Long bases his cautious outlook for Apple on several factors:
(1) Continued iPhone weakness through the iPhone 16 launch, with no compelling features or upgrades anticipated. (2) Mac and iPad needing to revert to pre-Covid levels, given they were stagnant pre-pandemic but are still running 20-30% above those levels. (3) A slowdown in Services growth, with regulatory risks increasing. He projects a significant drop in Services growth rates for the next two fiscal years. (4) Stretched valuation, especially following several weak quarters, with Apple’s stock performance driven by multiple expansion, not earnings growth. (5) Diminishing returns on the ecosystem, with less pull-through from new products/services, making growth more challenging in the coming years.
Despite Apple’s substantial gain of nearly 50% in 2023, Long cautioned, “A continued period of weak results coupled with multiple expansion is not sustainable.” Apple’s shares fell 3% following the downgrade.
This decline in Apple is significant, considering the substantial contribution of the “Magnificent Seven” tech giants to the S&P 500 Index’s advance last year. With key economic updates due this week, including the December jobs report, investor sentiment and Federal Reserve policy expectations could face new tests. These updates could impact bets on swift and significant interest rate cuts in 2024 that have been underpinning the stock market’s recent strength.
Opposite falling stocks was Bitcoin, which umped above $45,000 again over the last two days. Oil prices initially surged this morning, too, as clashes between US forces and Houthis continued in the Red Sea. This hit cruise lines like Carnival, which saw its share prices tumble as much as 5% this afternoon.
The AAPL downgrade was the the day’s most damaging market event, however, and could set the tone for the start of the year after 9 straight weeks of eye-popping gains.
