Apple Bounce Can’t Shake Off Chilling Signal for Stock Market

(Bloomberg) — The week is ending on a higher note for Big Tech on hopes a relentless selloff may be nearing exhaustion. But Friday’s rally can’t completely wipe out a sobering signal from Apple Inc. shares. 

After acting as a ballast for the broader market for most of the year, the stock broke down this week, with losses through Thursday exceeding 9%. Even after Friday’s rebound, Apple is now underperforming the S&P 500 for the year. And this, analysts say, is worrisome. 

“It is a troubling sign when investors sour on best of breed names in an already difficult tape,” said Nicholas Colas, co-founder of DataTrek Research. Apple’s slide “is part of a larger trend of investor risk aversion.”

It would be difficult to overstate the importance of Apple for the rest of the market. With more than $2 trillion in value, the company has the biggest weighting in the S&P 500, helping sway the benchmark in either direction. Further losses for the stock next week could help send the index down again. 

“It’s mathematically impossible for the S&P 500 to rise when the largest stocks keep falling,” said Kim Forrest, chief investment officer and founder of Bokeh Capital Partners. Seeing Apple drop so rapidly is “chilling,” she said.

Apple rose 3.2% on Friday, ending the week down more than 6% and erasing about $165 billion in market value. The losses were punctuated on Wednesday when Aramco, the Saudi Arabian oil giant that is benefiting from higher energy costs, overtook the company as the world’s most valuable.  

Apple’s immense profits have made it a popular destination for investors seeking safe haven assets amid market turmoil. But it’s now being swept up in the selling that started with more speculative growth stocks, which are valued more for their promise of future profits, making them more susceptible to higher interest rates and inflation.

Silver Lining

Of course, the selling could be a sign that investors are finally capitulating and stocks are poised for an extended rebound, said Forrest at Bokeh Capital Partners. 

One positive sign is that retail investors have continued pouring money into stocks this year in spite of the selloff and are still buying Apple. The stock was the second-most purchased by retail traders in the five days preceding May 11, according to data from Vanda Research.

Jason Benowitz, a senior portfolio manager at Roosevelt Investment Group, says he’ll be watching news out of China to gauge the direction of Apple’s shares. Covid-19 lockdowns in the country have disrupted the economy and threaten to exacerbate supply chain snarls that have cost the company billions of dollars in lost sales in recent quarters.

“There’s concern right now about the ability to operate in China,” he said. “Risk is going to be present for some time.”

©2022 Bloomberg L.P.