The year 2022 has not been kind to the equities market, especially tech and growth stocks. With US stocks officially in a bear market, high inflation and rising interest rates are raising concerns about a looming recession.
Even tech behemoth Apple has not been able to avoid the market carnage. Shares are down nearly 25% YTD.
But July has tended to be one of the best returning months for the Cupertino, California-based company. So, is now a good time to buy Apple?
Figure 1: Buy Apple Stock In July?
Unsplash
(Read more from Apple Maven: ARKK: Why Cathie Wood Won’t Buy Apple Stock)
AAPL’s Calendar Trends
Historically, there are reasons to be excited about AAPL in July and August. Apple stock’s outperformance over the S&P 500 in the last decade has been a solid 5% on average. And during the past five years, only once has AAPL trailed the market in July – and that was by less than -1%.
Figure 2: Apple’s average monthly returns vs. S&P 500.
Why the strong performance during midsummer? Historically, sentiment around Apple has spiked ahead of two important calendar events: 1) the launch of the new iPhone in September and 2) the holiday shopping season.
Since the launch of the very first iPhone in 2007, the two months leading up to the iPhone’s annual model update (July and August) have shown returns of 6.7% and 5.3%. It is during these months that investors start setting their expectations on Apple’s core product demand.
Figure 3: AAPL average monthly return since iPhone launch.
data from Yahoo Finance
And it is towards the end of the third calendar quarter when financial results are most likely to reflect the strengthened demand for Apple’s products and services. Past trends, however, have shown that the market usually prices in those increased strengths in the months preceding Q3.
Indeed, the hype over Apple’s fall announcements often becomes too frothy. Traders tend to “sell the news,” when it does eventually arrive. This is one of the reasons that AAPL stock has historically declined or broken even with the S&P 500 between September and December.
However, this time around, there is strong macro pressure bearing down on iPhone demand. High inflation has been bringing down consumer confidence.
According to the latest data from June, The Conference Board’s consumer confidence index suffered a 4.5-point loss, sinking to 98.7 for the month. That’s the lowest level since February of 2021.
Wall Street Looks Past June, Sets Its Sights on the iPhone 14 Launch
Chinese lockdowns, stemming from Xi Jinping’s Zero-Covid policy, have been a major concern on Wall Street lately. Lockdowns are forecast to cut Apple’s revenue by between $4 billion and $8 billion for this quarter, according to guidance provided by Cook & Co.
However, according to Wedbush analyst Dan Ives, the problems in China probably peaked in June, meaning the worst may be over.
Ives also believes that Wall Street is well aware of the weakness Apple will face this quarter. He sees smart investors looking past Apple’s June numbers and instead focusing on September and December quarters as well as iPhone 14 production and demand numbers.
The Wedbush analyst further stated that Apple’s installed base will help it continue to navigate macro storms with success.
Finally, Ives said some investors are likely underestimating the iPhone upgrade cycle – roughly 240 million of Apple’s 1 billion iPhone users have not upgraded their phones to a new model in the past 3.5 years. Should those users upgrade soon, that could mean a sizable chunk of revenue for Apple.
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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 Apple Maven)
