On November 3, the Federal Reserve communicated its highly anticipated decision to begin slowing down the pace of its bond purchases this month. This is the first major step in the US central bank’s monetary policy tightening process.
Figure 1: Apple store in New York, NY.
Today, the Apple Maven discusses what the change in the Fed’s policy might mean for Apple stock (AAPL) – Get Apple Inc. (AAPL) Report. Should investors be encouraged and buy shares, or fear and stay away?
(Read more from the Apple Maven: What To Expect Of Apple Stock In November)
An anticipated return to normalcy
As a recap, the beginning of what is known as “tapering” has to do with the Fed’s asset purchase program – one of the tools at the central bank’s disposal to inject liquidity into the economy. Nothing has yet been announced on the increase of short-term interest rates, which the market expects to start happening in the summer of 2022.
I believe that the Federal Reserve’s November policy decision was very much in line with expectations, even though some experts believe that Jerome Powel & Co. should dial up on hawkishness. Despite the absence of surprises, stocks jumped following the press release and the chairman’s speech. The tech-rich Nasdaq index climbed roughly 1% between 2 p.m. EST and the end of the trading day.
How it impacts AAPL
I do not believe that the size of the Fed’s balance sheet or a potential 50- to 100-basis point increase in short term rates over the next two years matter much to Apple’s business. Therefore, from a fundamentals perspective, I think that Wednesday’s monetary policy event was net neutral for the company.
But still, I think that investors have reasons to be optimistic about holding shares of the Cupertino tech giant. The same-day spike in the Nasdaq suggests that there is a market appetite for tech stock, even in an environment of (1) less monetary support for the economy and (2) rising yields. As a reminder, growth stocks often traded opposite the direction of interest rates through most of 2021.
Also, the US central bank seems to be cautious enough about the monetary tightening process, more so than many of its counterparts in other countries. I believe that more predictability and fewer sudden moves bode very well for stocks in general – and for AAPL specifically.
Keep an eye on what matters
Having said the above, I think that AAPL investors should now turn their attention back towards what matters most. The company’s fundamentals remain strong, as I have been arguing even after mildly disappointing fiscal Q4 earnings.
Also, AAPL stock price remains below all-time highs at $151 apiece, although not by much. Trading at a fiscal 2022 P/E of 26 times, I believe that valuations are conservative enough to warrant a buy at current levels – even if they may not suggest a bargain, necessarily.
Twitter speaks
The Fed has officially announced the “beginning of the end” of monetary easing that was triggered by the pandemic. Do you think this is good news for the equities market at large, and for Apple stock specifically?
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(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Apple Maven)
