Apple is exerting the biggest drag on US technology earnings, deepening concern that slowing profit growth for the S&P 500's largest sector poses a significant hurdle as the broad market flirts with setting a new high.
Apple shares opened 8.3 per cent lower at $95.68 in New York on Wednesday, weighing on the technology sector, which accounts for a fifth of the S&P 500, and is the largest single market group.
The S&P 500 Information Technology currently ranks as the third-worst performing sector this month, with its opening drop of 1.4 per cent on Wednesday. The sector has declined 3.6 per cent so far in April.
Disappointing earnings from Apple, which in 2011 eclipsed ExxonMobil as the world’s largest company by market value, was seen increasing doubts that the S&P 500 can advance this year without the technology sector firing.
“Apple was a very large part of the S&P 500 growth during this cycle,” said Jonathan Golub, chief market strategist at RBC Capital Markets. “It was a big growth engine and I don’t think it is coming back.”
The broad market sits less than 2 per cent shy of last May’s record close, however the current earnings season shows investors are paying more for companies producing weaker bottom line growth.
Other tech giants have also disappointed investors this month.
Shares in Alphabet, Google's parent company, have fallen 7 per cent since its earnings disappointed last week, while those of streaming site Netflix have sunk 15 per cent after its international subscriber growth fell short of forecasts. The companies, along with Amazon and Facebook - both with earnings due this week - made up the so-called Fangs that all wildly outperformed the wider market in 2015.
Tech’s current performance is a sharp reversal for a sector that was among the top five performing in each of the last four years.
The first quarter will be the first time that Apple has been the worst drag on the technology sector's profits since 2013, according to data provider Factset, as the company's earnings per share fell 18 per cent to $1.90, missing forecasts of $2.
Until this year, Apple contributed at least 5 per cent of overall operating earnings for S&P 500 companies in five of the previous six quarters, data from S&P Capital IQ show.
Shares in the iPhone maker tumbled 8 per cent in pre-market trading in New York on Wednesday after the company report a bigger than expected fall in profits in the first three months of the year, while also disappointing with sales forecasts for the current quarter.
That underwhelming outlook ricocheted across shares of the companies that make up Apple’s supply chain, with those of Taiyo Yuden, a Tokyo-listed maker of semiconductors used in smartphones, falling as much as 5 per cent.
Copyright The Financial Times Limited 2016
