After a general tech sell-off on Friday, Apple shares are down another 3.5% today, supposedly as a result of a new analyst report from Mizuho Securities downgrading the stock. While today’s drop is likely part of the same sell-off wave that began on Friday, the downgrade is not the sole cause of it.
Apple’s stock has been riding high on excitement around the company’s new 10th-anniversary phone, which is expected to be unveiled in the fall. The new phone will reportedly break the current mold of the iPhone, introducing a brighter OLED screen, edge-to-edge display, a 3D sensor (possibly for augmented reality apps), and a high price tag. So there’s a lot to be excited about.
But Mizuho Securities downgraded Apple’s stock to “neutral” (read: hold) on Friday, because the firm believes shares are currently overpriced. In fact, many analysts feel that way, and with good reason: The rumor cycle around the iPhone began months ago, so it has already been reflected in the stock price. Add to that the high likelihood that the iPhone 8 will be delayed by as long as two months—as my sources indicate it will—and it’s no wonder why investors are feeling jittery. Such a delay would put the new phone’s on-sale date well into November. To make matters worse, the iPhone 8’s high price tag may limit its potential to get people to defect from Android phones. So there’s a lot to be excited about from the consumer standpoint. But for investors, there’s a lot to be worried about too.
Such concerns are justified, and they are just part of the reason for today’s stock drop. The other half of the story has little to do with the new iPhone at all, says Patrick Moorhead, an analyst at Moor Strategies. It’s likely the result of rumors that the Federal Reserve will raise interest rates this week.
“Whenever there’s a rumor of interest rates going up, investors often take their money out of stocks and put them into bonds,” Moorhead says. He adds that investors commonly move money back and forth between stocks and bonds, depending on market conditions.
The combination of an inflated Apple stock price and a possible interest rate hike may have made the time right to pull money out of Apple stock.
“It’s an excuse for some profit taking,” Moorhead says. “They probably see it as a good time to advise clients that it’s time to put some of their money on the sidelines, as opposed to keeping it in the stock.” (And, remember, brokers get paid for every trade.)
Interest rates aside, you can count Moorhead among those analysts who believe Apple’s stock price is not currently supported by the near- and mid-term earnings potential of Apple and its products. As a result, he was hardly surprised by the sell-off on Friday and Monday. “I don’t understand why it’s taken this long,” he says.