Apple Takes A Breather, But The Signals Are Clear

Key Points

• Shares have been trading well despite missing earnings. 
• The macro conditions which did so much damage have started to dissipate. 
• Against its main competition, Apple is by far the strongest performer. 

Though Apple Inc’s NASDAQ: AAPL stock undoubtedly benefited from the company’s recent results, they’ve traded largely sideways. Having at one point been up a full 25% from the first week of the year, it’s perhaps not all that surprising that they might take a breather. And it’s all the more understandable when one considers how, the broader equity market has cooled in the past few weeks, with the S&P 500 index down nearly 5% since the start of February. So where to next? 

This comparison against the major index could be the clearest signal when we see how Apple stock trades flat over the same timeframe. You have to be thinking that if the wider equity market weren’t taking a breather right now, Apple would still be trending up. 

It looks like this current uptrend has legs yet, and it’s gone a long way to break what was starting to look like a scary downturn. As the calendars were turned over to 2023, Apple shares were briefly trading back down at 2020 prices. Now, they’re only a 20% move up away from the all-time high tagged last year. 

Sizing Up The Opportunity

Overall, the fundamental drivers are in place to support this. The company disappointed investors with their headline numbers from this month’s report. Still, as CEO Tim Cook made clear, Apple would have grown in the “vast majority of the markets it operates in on a year over year basis if not for the significant 800 basis point FX headwind.”

For context, through last September, the US Dollar Index ran up to its highest level since 2002, making US exports all the more expensive for non-US consumers to buy. Couple this with runaway inflation on a global scale and a worldwide consumer spending fall and you have the perfect recipe for disrupting Apple’s long-time track record of strong earnings. 

But looking at the quarters and year ahead, there are signs that the macro headwinds, which hurt the last report so much, are already dissipating in a manner that should be felt in the coming ones.

For starters, the dollar has weakened considerably since last October, and while it’s still higher than where it spent most of the past two decades, global inflation is forecasted to cool through this year. That will take the pressure off the bid and, ideally for Apple investors at least, bring the dollar back down to its longer-term average.

If the Fed Reserve and its international counterparts can indeed stick the landing and avoid a global recession, the consumer spending crunch may not be as bad as once feared. 

As Wedbush’s Dan Ives noted earlier this month, Apple’s growth story is "holding up much firmer than the Street had feared in this economic uncertain backdrop, particularly as China continues to come out of its COVID-related economic malaise.” Ives’ Outperform rating on Apple stock is matched by the team at Wells Fargo and Citi too. Their price targets range from $175 to $185, suggesting there’s a fresh upside in the region of 25% from where shares closed on Wednesday. 

Getting Involved

Were they to indeed trend up here in the coming weeks, as we expect they will, that would put them back at all-time highs. Not a bad return for a company at a time when the tech-heavy NASDAQ index is still down 30% from its own all-time high.

If you were to zero in on the upside that might be expected versus Apple’s closest competitors, say Alphabet Inc NASDAQ: GOOGL and Amazon.com, Inc. NASDAQ: AMZN, it’s still a no-brainer from a simple returns point of view. Apple shares are up 17% this year alone, versus 12% for Amazon and 4% for Google’s.

The market is giving us about as clear a sign as it can that Apple stock is the strongest of the big tech names, and if the macro situation can continue to improve, the only way is up.