The Gut-Punch to Apple Stock Is Only the Start of the Beating to Come

AAPL - The Gut-Punch to Apple Stock Is Only the Start of the Beating to Come

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Several weeks ago, consumer-electronics giant Apple (NASDAQ:AAPL) made history by becoming the first trillion-dollar company. But amid yesterday’s huge market collapse, AAPL stock made another unprecedented move. This time, it’s for the wrong reasons.

For Wednesday’s session, Apple stock closed down almost 5% against the prior trade. Unfortunately, the collapse triggered a dubious record. So far this year, it’s the company’s worst single-day performance in the markets. Shares now sit just under their 50-day-moving average, with more pain likely.

I say that because the Dow Jones Industrial Average, which includes AAPL stock, suffered a stunning meltdown. What’s more disconcerting to investors is that no readily available explanation exists. Sure, interest rates are rising, and safe assets like Treasuries offer attractive and virtually guaranteed returns. That puts other consumer tech stocks like Netflix (NASDAQ:NFLX) and Amazon (NASDAQ:AMZN) under the eight-ball. Of course, we also have the China tariffs.

However, we already knew about all these headwinds. Interest rates? Generally speaking, they’ve been rising since election day 2016. And while President Trump has flip-flopped on this issue, he’s still an anti-quantitative easing guy. Let’s take a step back to September 2016, when I wrote:

“No stranger to controversy, Donald Trump has been a repeated critic of liberal economic policies. His most high-profile target is U.S. Federal Reserve Chair Janet Yellen. Trump characterized the low-interest-rate environment promoted by the Fed as being politically motivated. He further raised eyebrows by stating that Yellen should be ashamed of herself.”

No, the markets knew about rising rates for quite a while. Trump has also lashed out against the Chinese, so that’s not an excuse either. So why did the markets collapse, and how should investors respond to Apple stock moving forward?

Prior Vulnerabilities Will Haunt AAPL

The answer to the first question is fairly easy. I blame Taylor Swift.

Swift broke her longstanding political silence, strongly backing Democrat Phil Bredesen and sharply criticizing Republican Marsha Blackburn. In turn, President Trump responded that he likes “her music about 25% less now.”

What does this have to do with AAPL? This otherwise childish drama illustrates how insanely fractured our country is. Swift has every reason in the world to keep her mouth shut. She started her career as a country artist, which to my understanding caters to Bible-thumping, gun-toting, NASCAR-watching white conservatives.

Above all else, financial markets love stability and relative predictability. Nothing is normal about our current situation, and nearly everything is variable. By logical deduction, Apple stock and most other companies will fall in tandem.

But AAPL shareholders need to pay particular attention. For one thing, in this fractured market, buying Apple stock right now makes little sense. Shares yield 1.4%. The 10-year Treasury note yields 3.2%.

Another point to consider is market psychology. The bears see blood in the water. They want nothing more than to drop AAPL from its trillion-dollar perch. I’m almost certain that will happen very soon.

But the biggest concern I have for Apple stock is the underlying company’s ongoing vulnerabilities. Top among these is peak smartphone. A recent Bloomberg Businessweek report indicated that international smartphone sales have declined at an alarming rate. Since a phone is a phone, it’s hard to see how AAPL will break itself out this rut.

While the company has released several products, the iPhone still represents over 60% of all revenues. Naturally, if the smartphone market is becoming worryingly saturated, AAPL must diversify effectively. The problem is, they’ve released several products, but none with the iPhone’s social cachet.

What Should You Do With Apple Stock?

Given the consumer-electronic firm’s weaknesses, and the present market situation, shareholders should strongly consider trimming their exposure to Apple stock. Not only will shares lose their trillion-dollar market capitalization, I’m eyeing worse things.

The reason why is Amazon. The e-commerce giant dropped over 6% in the midweek session. That’s seriously troublesome for AAPL stock because Apple is a commoditized company. If you really think about it, their only captivating and proven product is the iPhone.

On the other hand, Amazon is a retailer. It distributes products from everyone. AAPL shedding demand is a very specific event. But AMZN getting wrecked indicates that the entire consumer industry is feeling the heat.

Because Apple stock isn’t exactly going against the grain, I’m very hesitant on it. Remember that I detailed why profit-taking was a good idea a month ago! If it made sense back then, it certainly makes more sense today.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

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