AAPL Apple Inc

Apple's slump toward bear territory has investors questioning broader rally's survival

By Amrith Ramkumar 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 19, 2018).

The nine-year-old bull market is hunting for a new leader.

Apple Inc. is on the cusp of a bear market, a troubling sign for some investors who question whether the U.S. stock rally can regain its footing without the leadership of the world's most valuable public company.

Investors have flocked for years toward Apple and a handful of other companies in the technology sector because of their ability to consistently increase sales regardless of global economic growth. But recent trade tensions between the U.S. and China and signs of slowing tech-sector revenue growth have dimmed their prospects.

The iPhone maker, which in August became the first U.S. firm to top $1 trillion in market capitalization, has lost nearly $200 billion in value from its Oct. 3 peak. The stock has slumped 17% to $193.53, putting the tech behemoth in danger of ending a bull run that stretches back to May 2016, according to Dow Jones Market Data. A close at or below $185.65 would push Apple to the 20% decline that typically characterizes a bear market.

What's more, Apple appeared to be a safety play during much of October's rout that erased roughly $5.5 trillion in global stock-market value. As investors fretted about softening global growth, trade tensions, rising interest rates and peaking corporate profits, Apple's shares remained relatively resilient: They dropped just 3%, while other highflying stocks like Amazon.com Inc. and Netflix Inc. tumbled by double digits.

Then, at the beginning of this month, Apple issued a tepid revenue forecast for the holiday quarter. That stripped the company of its $1 trillion mantle and extended declines in the broader market as well. The market retreat accelerated this week after two key iPhone suppliers cut their earnings projections for the coming months.

It makes investors very afraid when Apple and other tech companies start slumping, said Kim Forrest, senior portfolio manager at Fort Pitt Capital Group. "Times of transition are especially troubling for people, and that is what we're seeing."

During many of the market's recent selloffs, analysts have said early-day weakness in the technology sector has quickly spread to other industries. That reflects the outsize sway of the sector and the sprawling supply chains of many companies in it.

Apple makes up about 4% of the S&P 500, which is weighted by market value, and roughly 5% of the price-weighted Dow Jones Industrial Average. It accounted for nearly 13% of the S&P 500's total return for the year through September, according to S&P Dow Jones Indices, trailing only Amazon. Those two stocks and Microsoft Corp. together represented more than 35% of the index's return in the first nine months of the year, before the tech rally stalled.

Since then, Apple has been the largest drag on the benchmark index's total drop, accounting for 11% of its negative return through Thursday. Apple won't be alone in the bear cave: It would join Amazon, Facebook Inc., Netflix and the PHLX Semiconductor Index, a striking reversal for a group that had powered major indexes higher in recent years.

Apple is still one of the most widely held stocks among institutional and retail investors, and some of the world's largest asset managers, including Vanguard Group, BlackRock Inc. and Fidelity, are among its biggest shareholders. Warren Buffett's Berkshire Hathaway Inc., which added to its Apple stake in the third quarter, has also been a big beneficiary of Apple's meteoric rise in recent years.

Those investors are still looking at impressive gains: Apple's market value has more than quadrupled in the past decade even with its recent drop.

Apple declined to comment.

For some investors, Apple's recent slump is a sign of the lingering trade and global-growth concerns stirring angst heading into the year's end. The company is among the multinationals that have urged President Trump to avoid a trade battle with China, saying it would hurt U.S. firms.

"Everything has been pulling back on the larger fears around global growth and higher interest rates," said Sylvia Jablonski, head of capital markets and institutional strategy at asset manager Direxion Investments.

Ms. Jablonski said she has observed some investors buying some of Direxion's technology-focused exchange-traded funds following the sector's recent slump. Many, though, are also embracing other sectors such as health care, now the S&P 500's best-performing group in 2018.

Others say they prefer stocks with more stable profit growth and higher dividends, the kind of stocks that for years have taken a back seat to fast-growing technology companies.

"We are finding value in other places," said Trip Miller, managing partner at Gullane Capital Partners, which owns Apple shares. "This is a slow-growth period for them, and they're so dependent on the phones."

Mr. Miller said his firm hasn't recently added to its position in Apple but has instead been buying shares of companies such as Wynn Resorts Ltd. and FedEx Corp. that he considers less expensive.

Still others expect technology to eventually resume its leadership position, noting that far-reaching concerns about trade tensions aren't exclusive to the tech sector.

"The question is what takes the leadership role, and that's a little bit uncertain right now," said Jim Tierney, chief investment officer of concentrated U.S. growth at AllianceBernstein.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

November 19, 2018 02:47 ET (07:47 GMT)

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