Apple stock market rebound a clue to investors

Apple Inc. holds a clue for investors trying to figure out if the stock market rebound has staying power.

The most valuable company in the world is the biggest influence on the S&P 500 Index and participation in the market-capitalization weighted benchmark is essential to a sustainable rally. Apple shares have helped spur a 21% rebound in the tech-heavy Nasdaq 100 from a June low, and are on pace to beat the S&P for a ninth consecutive week.

According to Nicholas Colas, co-founder of DataTrek, Apple is a so-called tent-pole stock that dominates investor attention and can help define investment narratives. In that respect, he said that Apple's recent performance is quite heartening. The S&P 500 is down 11% in 2022 despite the rally since June. Apple's shares are on the cusp of turning positive for the year after tumbling with other technology stocks in the first half. Since the 2008 financial crisis, its shares have outperformed both of the bull markets.

In snapping up Apple shares, investors are betting that the iPhone maker's strong balance sheet will allow it to return cash to shareholders and wring big profits out of its more than 1 billion users despite the possibility of a recession in the US with the Federal Reserve bent on fighting inflation.

Daniel Morgan, senior portfolio manager at Synovus Trust, said that Apple is a safe haven that people flock to when uncertainty abounds in the rest of the market. The S&P 500 has a lot of Apple shares that are driving the rally based on the durability of its model. Like the broader market, risks to Apple's ascent abound. Inflation is weighing on consumers while China's stringent Covid 19 policies pose a lingering threat to its supply chains. While Apple asked suppliers to keep pace with the pace of iPhone production last year, some of Apple s suppliers are alarming about a pullback in demand.

Micron Technology Inc. warned that sales in the current quarter are expected to be weaker than expected, when the maker of memory chips gave its forecast less than six weeks ago. Revenue projections from Nvidia Corp. and Qualcomm Inc. came after disappointing revenue projections.

The news from chipmakers did not stop technology stocks from rallying this week after a US consumer price gauge came in lower than expected, a result widely interpreted as easing pressure on the Federal Reserve to hike interest rates to tame inflation. The Nasdaq 100 is on pace for a 2% gain, with more interest rate sensitive stocks like cybersecurity company Zscaler Inc. jumping more than 10%.

The rising stock price has put the shares back in expensive territory for Apple. It is now priced at 27 times the profits projected over the next 12 months, compared to an average of 17 over the past decade. That is making investors wary of buying the stock at current levels, like David Bahnsen, Chief Investment Officer at the Bahnsen Group.

He said that Apple is probably the safest of the FAANG plays, but it isn't an attractive entry point, referring to the cohort of mega-cap technology companies.

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