Apple Experienced Two Downgrades in the First Week of 2024. Can the 'Magnificent Seven' Still Bolster the US Stock Market?

The largest technology stocks that lifted the broader market last year are having a less-rosy start to 2024.

The so-called 'Magnificent Seven' , which includes Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Tesla and Nvidia, slipped for the last four trading days, the longest losing streak in a month, according to the Bloomberg Magnificent 7 Price Return Index. It's a signal that investor doubts over the sticking power of the 2023 rally were well-placed.

Source: Bloomberg

The first week's performance of the 'magnificent seven' correlates highly with the full-year performance of the US stock market (data going back to 1990). While the hit ratios is just under 50%, there is about a 26% correlation between the first week's returns of the top seven and the full-year returns of the entire index. This correlation is higher than that between the first week's returns of the entire index and the full-year returns, which is about 16%.

In other words, poor performance from the 'Magnificent Seven' also bodes trouble for the U.S. stock market.

Piper Sandler & Co.'s Harsh Kumar cut his Apple rating on Thursday, citing a weak macro environment in China that will dampen demand for iPhones.

“We are concerned about handset inventories,” Kumar said in a note, lowering his recommendation for Apple to neutral from overweight after holding a bullish view since March 2020. “Growth rates have peaked for unit sales,” he said.

Kumar's downgrade follows a more bearish move by peers at Barclays Plc, where analysts led by Tim Long cut their rating to underweight and price target to $160 on Tuesday.

Coming into 2024, Apple was the big tech stock with the least number of bullish recommendations, according to data compiled by Bloomberg. Piper Sandler's downgrade now pushes the company's buy-equivalent ratio down even further - with the percentage of analysts bullish on the company at a three-year low.

Source: Bloomberg

Tesla has shed more than 4% this year, its longest streak of losses in more than four weeks. Though Tesla reported Tuesday that it delivered more electric vehicles in the fourth quarter than analysts expected, the company lost its place as the top seller of electric cars to China's BYD Co.

But, the largest tech names also have their work cut out for them in 2024. The companies need to continue to deliver not only solid technology, but profitable technology going forward, according to Steve Sosnick, chief strategist at Interactive Brokers Group.

So, can the AI frenzy continue to bestow a halo effect on tech stocks in 2024? Will the mega-cap stocks be able to deliver impressive performances in the upcoming earnings season? Let's wait and see!

Source: Bloomberg, Yahoo Finance