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September 11, 2023 - When Apple sneazes, the markets catch a cold.

It is very rare (apart from periods of global crisis) that Apple shares lose 8% of their value in just two days. And when this happens to the most valuable company in the world, it has ramifications for the stock markets around the globe. The impact of Apple's sharp fall in such a short period time is not only psychological, but has also real effect on the indices of which it is a constituent. In the S&P500 , its weight is about 8% and in the Nasdaq-100 almost 13%, not to mention that it carries a 5% weight in the global MSCI World Index. On the sentiment side, we will remind our readers that just 7 stocks in the US have contributed to the 15% rise of the S&P500 index this year, of which Apple is one of them, and hence they have been dubbed the name "The Magnificent-7". If Apple shares continue to fall, then the attention will turn to the rest of this "gang" and their leadership will be challenged, impacting in the short-term, the direction of the main US indices.

It all started with reports that China is going to ban the use of iPhones by government officials, which could eventually extend to all public service employees. Having been on the defensive for more than four years and accepting the US attack on its economy (tariffs, semiconductor export bans etc.), China could be looking to retaliate, through an iconic brand, such as Apple. At this stage, there is no official announcement and we have to also bear in mind that Apple's revenues are not just the iPhone, but it still represents almost 50% of its annual sales. Trading at a 3 trillion USD valuation and more than 30 times next year's earnings, before last week's fall, Apple was priced for perfection. And such news dent this perfect scenario for the company, as iPhones sales growth had slowed down in the last two years anyway. Having said that, further weakness it would create a buying opportunity for an (almost) perfect company.

At the same time, Tech-related companies saw the news of the Digital Markets Act (DMA), which was published on Wednesday, in continuation of the EU's efforts to exercise some control and put some restraints on the big Technology companies. The DMA is one of the world's toughest pieces of legislation and is aimed at making it easier for people to move between competing services – such as social media platforms, internet browsers and app stores. The DMA earmarked 22 services of the major tech companies as "gatekeepers" of online services and the targeted firms are: Alphabet (Google), Amazon, Apple, Meta (facebook), Microsoft and TikTok owner ByteDance. For example, Apple and Google will be forced to provide space for third-party App stores on their respective iOS and Android devices and they have 6 months to comply.

Eurozone's 2nd quarter GDP final reading showed growth of just 0.1% on a quarterly basis, from the initial 0.3% estimate. When compared to the same period of last year, it rose by an annualized 0.5% , instead of 0.6% initially thought. These data are important at a time when the ECB is meeting this week (Thursday 14/9), to decide whether the time has come for it to make the first pause in raising interest rates or not. Recent macro-economic data in the region have been on the weak side, and especially in Germany, the region's largest economy. With the German central banker being, however, one of the hawkish members of the governing council, or in other words the person with the highest desire to raise interest rates even higher, it will be interesting to see if he has changed his mind or not.

Equities moved lower after two weeks of gains. The drop of Technology related stocks led Nasdaq lower by almost 2%, while the broad US indices fell by about 1%. European indices had a similar performance with slightly less than 1% drops, while the UK bucked the trend with small gains, as shares of Energy stocks as well as Pharmaceuticals moved higher. The S&P500 fell below its 50-day moving average again, although this technical level has failed to provide any meaningful forecast of short-term direction lately. In Europe, the Euro Stoxx 50 fell again close to the lows of mid-August, and just managed to recoup the important 200-day moving average on Friday, having fallen just below it during the week's weakness.

Bonds were able to stabilize, after the sell-off in the first days of September. The recent lackluster macro-economic data on both sides of the Atlantic, as well as the weakness in equity markets, led buyers to outpace sellers, so that prices moved higher and yields lower. The US 2-year yield dropped below 5% again to 4.97%, but the 10-year remained close to the recent highs at 4.27%. The 70bp difference between the 2-year and the 10-year is the lowest in many months, and this time it was due to the short-end yield falling, which is called a "bull steepening" of the curve. This is usually a bullish sign for the bond market, but it is usually associated with a recession in the following months. Of course, calling a recession in the last 12 months has been a bad call to have made, as the GDP data and the labor market have failed to show it.

Chart of the Week : The smartphone market has reached a saturation point.

The news about China and Apple came at a time, when the iPhone business segment had already started showing a slowing growth. The above chart compiled by Kepler Cheuvreux shows the number of smartphone units sold globally since 2015 and the forecasted figures for 2023-2025. After peaking in 2016-2017 close to 1.5bn phones, annual sales have been dropping with the exception of 2021, and probably a pandemic-related jump in units sold. Since then, the global market has dropped to about 1.1bn expected in 2023, and a move towards 1.2bn expected in the next two years. This evolution is only natural, as people tend to keep their phones for longer and the initial rush into buying a smartphone was probably completed back in 2016/2017. And this means that sales in volumes for global leaders such as Apple is not expected to show any particular growth in the next two to three years. Of course we should keep in mind that the above figures are units, and every year the ASP (average selling price) of the units moves higher and higher, meaning that they get more expensive. And companies have managed to show an improved revenue evolution despite the fact that they are selling less units ,because of higher ASP. As always there will be an inflection point, where the consumer "revolts" against higher prices and decides to keep his/her iPhone much longer than before, which means even lower growth in units. Apple, of course, knows that and that is why the iPhone sales are now "just" 50% of its annual revenues and subscription income from the AppStore and cloud business has become so important. Investors are probably going to see past the recent iPhone business issues and focus on the longer term future of the company (...which could include an iCar).


• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : Kepler Cheuvreux Cover photo:


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