Premarket: Apple is red

apple premarket red 2-22From the wsj’s “Stock Futures Drop, Pointing to Retreat in Technology Shares” posted early Monday:

U.S. stock futures fell Monday, pointing to losses for the major indexes as rising bond yields prompted concern that technology shares are looking too expensive.

Investors are betting that the rollout of vaccines and President Biden’s proposed $1.9 trillion stimulus package will accelerate the economic rebound later this year.

Those expectations, combined with worries about rising inflation and the prospect of interest rates climbing sooner than anticipated, have contributed to a selloff in U.S. government bonds in recent weeks. Declining bond prices result in rising yields, which have stoked concern that highflying stocks are starting to look less attractive than assets considered to be risk free.

apple premarket red 2-22“As the yield goes up, there is more demand for [government bonds] in relation to other assets,” said Hani Redha, a portfolio manager at PineBridge Investments. “How much are you willing to pay for stocks? If you’re only getting a very low yield from bonds, you should be willing to pay a higher amount for stocks. But that starts to change when bond yields go up.”

Money managers have also been rotating out of the richly valued technology stocks that led markets higher last year. As economic prospects brighten, they are moving funds into economically sensitive sectors, leading to a rally in financial and energy stocks.

“They are about to put lighter fluid onto the barbecue with this $1.9 trillion in stimulus,” Mr. Spencer said. “You’ve got everything in your favor at the moment: good news on Covid-19 and stimulus and good earnings. That is why rates are higher,” he added.

My take: Let me get this straight. Fearing inflation, Mr. Market is selling bonds, driving interest rates higher and making AAPL et al. look overpriced. Meanwhile, anticipating stimulus checks, Mr. Market is buying … banks and oil companies? He doesn’t think some of those stimulus checks are going to be spent at the Apple Store?

12 Comments

  1. Gregg Thurman said:
    Increasing inflation increases the cost of capital, having a negative affect on profits, ergo equities go down. As inflation increases buyers want higher yields from bonds.

    Bonds are considered very low risk. With equities in danger of weakening institutional investors seek the safety of low risk bonds.

    0
    February 22, 2021
    • Mark Visnic said:
      Bonds are exceedingly expensive at current levels and if a sustained rate rise does play out, bonds will be big losers. Anything interest rate sensitive, including interest rate sensitive equities, will lose in a sustained rate rise environment. Apple is not an interest rate sensitive stock.

      As for inflation fears, talking heads have forecast 27 of the last one inflationary spirals. This too shall pass.

      Apple is neither a stay at home or a reopening play; it is both.

      1
      February 22, 2021
  2. Jerry Doyle said:
    I still am holding firm that we will see Apple @ $150 by the Q2 2021 earnings call in late April. Apple will provide numbers that will be difficult for analysts to ignore.

    Everyone is entitled to his/her opinions & we should respect their views; but I am in the camp that while Apple is a “stay-at-home” stock & benefits from pandemic related activities that once we are through the pandemic Apple still prospers robustly from the non pandemic environment.

    The recently approved $900B stimulus plan only now is getting into the hands of recipients & soon we will see the effects of another $1.9 proposed COVID-19 related stimulus package flood the economy. And it’s not over yet! More stimulus infrastructure monies are to come. As Josh Bolton said Friday, so much money is inundating the economy that the Fed and Treasury are having difficulty getting businesses to manage the flow timely so as to receive it. There’s not enough takers & the money piles up. At some point all this inflow jumpstarts the economy big-time. Technology shares are NOT too expensive. Apple’s current stock price is a steal and should be labeled a “buy” rating, as some analysts have assigned.

    Continue….

    1
    February 22, 2021
  3. Jerry Doyle said:
    Continued….

    I also have a price target of $200 on Apple by the Q2 earnings call of 2022, and I believe that is a conservative estimate.

    Lastly, I am in the camp that folk are not going to dive back into the pre-COVID-19 lifestyles like a herd of cattle once the vaccines have been administered to the populous. I see where Dr. Anthony Fauci is saying that normalcy will not occur this year & that we still will be wearing masks into 2022. COVID-19 caused a gravitational behavioral change that placed the populous on a new behavioral path different than pre-pandemic levels. The first obvious sign is how the world-of-work & distance learning now is widely accepted & remote medical assessments are not far behind. We now know much can be done remotely, minimizing the need for traveling & involving ourselves in groups & socials. There has been an earthquake social & work change movement & Apple is positioned propitiously to meet this new challenge going forward.

    3
    February 22, 2021
  4. Fred Stein said:
    Yes, but…

    AAPL will soon be seen as a safe bet against rising interest rates because its EPS is rising at 10% or more annually. It’s forward EPS at 27 is almost 4%, vs. 10 year Treasury at 1.35.

    Bonds are vulnerable to inflation and rising interest rates. Many other tech stocks are just over-priced.

    6
    February 22, 2021
    • Mark Visnic said:
      Right Fred. Apple’s earnings yield is more than 2x and depending on earnings this year possibly as much as 3x the 10 year Treasury. Rates can rise substantially without Apple being hurt, the short term perception notwithstanding.

      In February 2018 there were similar fears of rapidly rising rates, a persistent Apple bear, frequently espoused on CNBC, touting his own book, that the 10 year Treasury was heading to 3.5% on its way to 4+%. Today the 10 year is 1.33%, lower than where it was 12 months ago. Apple wasn’t hurt by a 10 year at 3% in 2018; it surely won’t be hurt by a 1.5% or 2% Treasury in an expanding economy in 2021.

      0
      February 22, 2021
  5. Dan Scropos said:
    Apple could very well retire 200 million shares this quarter and that’s simply remarkable considering the blowout earnings a few short weeks ago.

    A bit off topic but my brother-in-law is the biggest Android/Google guy I know. He swears by it. I see him yesterday and he plops down iPhone 12 Pro Max. I almost fell over. Today, he’s buying an Apple Watch. I have him talked into AirPods Pro, too. Apple’s dominance hit close to home yesterday. Jerry’s prediction of $200 next year is a near certainty.

    3
    February 22, 2021
    • John Konopka said:
      A friend of ours had an iPhone 6s. He kept complaining about the battery but didn’t want to upgrade because he is tight, admittedly so. We finally talked him into a 12 Pro. On our weekly FaceTime get together we showed him how to take pictures in a nearly dark room. He was totally blown away. Like a kid in a candy store.

      Superficial pundits say Apple hasn’t done anything since the iPhone. The answer is the iPhone. The current iPhone is so far advanced from the original one that it isn’t in the same league, yet it is still called an iPhone.

      2
      February 22, 2021
      • Mark Visnic said:
        “Superficial pundits say Apple hasn’t done anything since the iPhone. The answer is the iPhone. The current iPhone is so far advanced from the original one that it isn’t in the same league, yet it is still called an iPhone.”

        This also illustrates why inflation worries are overblown. The price of an iPhone is higher because of greater functionality and value, not inflation.

        1
        February 22, 2021
  6. Doug Montgomery said:
    David – didn’t they say on the last conference call that Services could be impacted negatively in the current quarter?

    0
    February 22, 2021

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