Stocks weren’t ready for their new all-time highs, it seems, after the market slid earlier this morning. Following the Independence Day break, Apple share prices fell, leading a sector-wide tech stumble.
And if you’ve been paying attention, chances are you’ve seen what happens when tech stocks falter.
The whole market typically does as well.
Even if that seems a little “knee-jerk” in nature, it’s easy to understand why it happens.
After all, tech has been the major driver for the post-2008 bull run.
Wherever tech stocks go, equities tend to follow.
So, when Apple, a tech (and market) leader hits the skids, investors start to get concerned.
And in this case, much of the drama was caused by a downgrade from an analyst at Rosenblatt Securities. They lowered their outlook on AAPL from “neutral” to “sell”, sending shareholders into a mini-panic at the open.
As of midday, AAPL has fallen roughly 2%, dragging down both the S&P (-0.60%) and Dow (-0.50%) with it.
Rosenblatt’s analyst is most worried about a “fundamental deterioration over the next 6 to 12 months”, most likely referencing Apple’s slowed iPhone sales. If they can’t get their other divisions firing on all cylinders, trouble could be brewing for CEO Tim Cook, a man that’s created several nonstarter new ventures.
That’s Apple’s critical mission over the next few years – getting away from an iPhone dependency. Thus far, things haven’t really worked out as planned. Don’t forget, it was just a few weeks ago that the smartphone giant debuted a $999 computer stand, drawing audible groans from the audience during a high-profile conference.
To Cook & Co, Apple cultists (AKA, customers) will buy nearly anything with the company’s logo on it. With their latest offering, it seems Apple’s ready to test just how much folks are willing to spend.
On an overpriced, overengineered piece of hardware, no less.
But that’s not all that’s got investors walking on eggshells. Fed Chairman Jerome Powell is expected to testify on Wednesday, following a healthy jobs report and temporary trade war truce – both of which could delay an interest rate cut.
“Friday’s employment data took the market by surprise. That dampens the prospects of the Fed acting,” said Peter Cardillo, chief market economist at Spartan Capital Securities.
“They will have to collect further evidence.”
And the more time they spend “collecting evidence”, the more nervous market bulls get. If investors aren’t rewarded with a July rate cut, the ensuing sell-offs could be damaging to a continued summer rally.
Many analysts (myself included) fear that much of the rate cut’s benefit has already been priced into stocks, and should it be delayed to August (or worse, cancelled), the market could retrace those gains rapidly.
Potentially leading to a fall correction.
Because as it stands, investors want it all.
They want a strong economy AND for the Fed to slash rates even further. The fact is, they’ll likely only get one (or even none) of the two, and the other could offset much of the market’s assumed gains.
Getting your hopes up like investors have done since June is a dangerous game, not just emotionally, but financially as well.
Overconfidence can be highly detrimental to anyone’s portfolio. It’s potentially more damaging when the market starts counting its chickens before they’re hatched.
That’s what we’re starting to see evidence of as of this morning. Come Wednesday, if Powell doesn’t say the right things, we could be in for a significant crunch.
Even if, ironically, that means the economy is stronger than expected.