Federal Reserve meetings are usually the focus of the market. But this time it's not like this, as investors seem to be more focused on Apple's latest performance report to be released after hours on Thursday than the central bank's interest rate decision on Wednesday.
There are reasons for concern about Apple. Apple is the world's largest company by market value, with a 7.2% weight in the S&P 500 Index. The company is facing a decline in smartphone sales, and one of its main suppliers, Foxconn, is under investigation. The market expects Apple to experience a fourth consecutive quarter of revenue decline, the longest lasting in over 20 years.
At the same time, other large technology companies have seen their stock prices decline even after posting strong financial reports this month, so if Apple's performance is weak, investors may be "even less willing to buy". Moreover, the recent sharp drop has caused the company, which was originally valued at about $3 trillion, to accumulate approximately $460 billion in losses.
If the earnings quality of large technology companies deteriorates - which is an important factor supporting the stock market this year - then the bulls in the stock market lack one factor to rely on, "said Ed Clissold, chief US strategist at market research firm Ned Davis Research in an interview
It should be noted that Apple itself is large enough to affect the returns of the S&P 500 Index, and it may also affect other stocks. The current market is already volatile, with the Standard&Poor's 500 Index and Nasdaq 100 Index dropping by about 10% from their peak in July.
Of course, the Fed's decision is still big news. Although traders generally expect the Federal Reserve to keep interest rates unchanged, they will carefully listen to Fed Chairman Powell's subsequent speech at a press conference, seeking hints about future trends and economic prospects.
Finally, other major events are also driving global risks. The conflict between Palestine and Israel is constantly escalating; A few hours before the Federal Reserve's interest rate decision on Wednesday, the US Treasury Department will announce a plan to sell bonds and bills to refinance government maturing debt. This may cause yields to soar again and put new pressure on growth stocks.
However, it should be emphasized that the financial reports of technology companies have recently played a significant role in stock price fluctuations, and overall, they are developing in a negative direction. Among the five major technology giants that have reported results so far, three (Tesla, Google, and Meta) fell on the second day after the results were announced, with only Amazon and Microsoft rebounding after the results were announced.
For investors, the key issue is that most of the gains in the S&P 500 index this year were contributed by the largest technology companies, which helped offset the weakness in real estate, financial, and healthcare stocks. Therefore, bulls must figure out where the returns will come from if large technology stocks continue to decline.
Eric Beiley, Executive Director of Wealth Management at Steward Partners Global Advisory, stated that this tense reaction indicates that after experiencing this year's rise, the stock market has been fully priced, so any slight weakness can be a reason for selling.
I am concerned about the risk of interest rates rising for a longer period of time, which sets a cap on investing in large technology companies because people are worried that a larger stock price decline is imminent, "he said.