Signs of weakness in demand for iPhones sent Apple shares tumbling Monday, weighing down several big-name tech stocks in a return to the kind of tech-focused sell-off that dominated markets last month.
Investor scrutiny of Apple Inc. began when one of the company’s suppliers, Lumentum Holdings Inc., slashed its own revenue forecasts on Monday before the start of trading.
Lumentum, the main supplier of facial recognition technology in the newest generation of iPhones, said it recently received a request to reduce its shipments to an unnamed customer.
That customer could only be Apple, according to a number of analysts.
“Many suppliers have lowered numbers because of their unnamed ‘largest customer,’ which is Apple. Apple got cautious in their guidance and it’s hitting their suppliers,” Elazar Capital analyst Chaim Siegel said.
Analysts at JPMorgan Chase & Co., meanwhile, cited weakness in orders for the new iPhone XR as justification for cutting their price target by US$4 to US$266.
Apple’s share price responded by falling 5 per cent to end the trading day at its lowest level in three months. Since peaking in October, the market capitalization of the world’s largest publicly traded company has declined by roughly US$200-billion.
The volatility in Apple’s share price subsequently put pressure on the stocks of several large chip makers and ultimately spread through markets in a broad-based decline.
The S&P 500 index lost 2 per cent on the day, while the technology-heavy Nasdaq Composite Index dipped 2.8 per cent. Canadian stocks followed suit, as the domestic tech sector led the way for a 0.8-per-cent drop in the S&P/TSX Composite Index.
The rest of the FAANGs – the group of stocks that also includes Facebook Inc., Amazon.com Inc., Netflix Inc. and Google-parent Alphabet Inc. – fared little better than Apple on Monday as investors returned to the kind of tech-focused sell-off that dominated markets last month.
The FAANG stocks as a group have declined almost 20 per cent over the past five months.
Before then, investor enthusiasm for the FAANGs lifted U.S. markets to rarefied heights, as the tech sector, by some measures, assumed a stature not seen since the dot-com bubble almost 20 years ago.
Worries that U.S. tech had become overvalued were stoked by concerns about the limits to expansion, particularly after Facebook stunned investors in the summer with a downgrade of its growth expectations, bringing about the largest single-day decline in company value in market history – US$119-billion.
The tech sell-off has also spread across the border into the much more modest Canadian IT sector. Although not large enough to drive the resource-laden Canadian stock market, the tech sector within the S&P/TSX Composite Index was down by 2 per cent Monday, and since mid-July is among the weakest segments of the market, having declined 16 per cent.
Some of the biggest Canadian tech stocks have been subject to considerable selling pressure over that time: BlackBerry Ltd. and Open Text Corp. have each dropped 14 per cent, while Shopify Inc. and Constellation Software Inc. are each down 21 per cent.
In both the United States and Canada, the start of November brought a more positive tone, as both the tech sector and the broader market rallied.
But looking ahead, there is much for a nervous investor to fixate on, from moderating growth in the U.S. economy and corporate profits to the slow normalization of interest rates after a decade at crisis levels, said Robert Kavcic, an economist at BMO Nesbitt Burns, in a note.
“None of this necessarily argues for the end of the bull market, but rather a re-setting of expectations, as we often see throughout the cycle,” Mr. Kavcic said.
With a file from Reuters