Apple's Earnings Not All Good News for Mag 7

Apple, once a leader among the Magnificent Seven stocks last year, is the latest to signal that a repeat of a strong rally may not occur in 2024.

Hitting the Peak

Apple soared 7% in after-hours trading following earnings exceeding expectations. Notably, the company announced its largest stock buyback programme in history, totalling $110 billion compared to $90 billion in 2023. However, it was not all positive news. Sales fell 4%, which CEO Tim Cook attributed to "tough comparables" against the prior year's strong performance. The company's flagship iPhone sales also declined 10%. While the bottom line still beat forecasts, it was lower than the comparable period in 2023. Without providing formal guidance, Cook struck an optimistic tone for the future, suggesting sales would increase in the current quarter.

Matching last year's momentum was always expected to be challenging. This has become a theme for most of the old Magnificent Seven as their performances have diverged significantly. Microsoft has extended its lead in market cap, though Nvidia remains preeminent for performance. In contrast, Tesla recorded the largest market cap loss in its history last month. Apple also remains in the red for the year despite the post-earnings jump.

Slowing Momentum

Analysts have revised their outlooks downward for many Magnificent Seven companies this year, citing a loss of momentum compared to the advancing wider tech sector. However, this is not due to a change in the fundamentals of these companies, but mostly recognition that matching the performance of the comparable period last year will be hard to beat. In other words, growth may return to normal, allowing other sectors to catch up.

This could offer pros and cons for the Nasdaq index, within which the top 7 companies accounted for around half the weighting and the vast majority of returns last year. A slowdown in the major companies may mean the strong gains in the index are not replicated. However, the index could still gain substantially if other technology companies can catch up. And increased breadth could help solidify the gains already made. With all the Magnificent Seven having reported earnings, there may be a couple of months of adjustment before the next big surprise impacting megacap valuations.

Flag or New Heights?

Nasdaq (US Tech 100) has already responded positively to Apple's earnings. However, a short-term bump was anticipated as the index slid to the 17k handle, with positive sentiment now paving the way for potential gains up to 17830 and 18180. The current price action appears to be corrective, resembling a flag and pointing to a downward continuation. Should 17250 and the round support be lost, the following levels to watch lie by 16670 and 16250. Otherwise, new record highs may be seen.

Source: SpreadEx / US Tech 100

Key Takeaways

Apple reported mixed earnings results, with YOY sales declining 4% despite beating expectations. While announcing its largest stock buyback and soared in after-hours trading, iPhone sales fell 10%. This signals that repeating last year's strong performance will be challenging for Magnificent Seven stocks. Analysts have revised their outlooks downward, recognising that growth may now return to more normal levels, allowing other sectors a chance to gain.