By Barbara Kollmeyer
The pain is piling up for equity investors after the long U.S. holiday weekend, with bond yields at levels not seen since early 2020, and oil prices tapping 2014 highs.
The pace of Federal Reserve monetary policy tightening amid the highest inflation in about 40 years, a bumpy start to the corporate earnings reporting season and pandemic uncertainties are just a few things on the worry list. Technology stocks /zigman2/quotes/210598365/realtime COMP +3.82% are set to take the biggest hit on Tuesday, as a rapid rise in short term interest rates tends to make their future cash flows less valuable.
While a Deutsche Bank chart (below) reveals more tech-bubble worries, our call of the day makes a case for one of the biggest tech stalwarts, Apple /zigman2/quotes/202934861/composite AAPL +3.19% , saying the iPhone maker has an ace in the hole that few are paying attention to.
That call comes from investment adviser Wedgewood Partners, who kick off their fourth-quarter 2021 client letter with a warning about market volatility for 2022, triggered by central bankers who are about to usher in some market chaos by pulling the plug on years of cheap money. Even Chinese President Xi Jinping was heard warning the Fed not to hike interest rates at a virtual Davos on Tuesday.
However, the adviser also sees opportunities ahead as selling picks up speed, and they plan to stick to Apple, which they’ve owned for 16 years.
While Wedgewood said it couldn’t foresee the many products the company unveiled, “we did know that Apple’s vertically integrated [software and hardware] product development strategy was unique and extremely capable of creating products and experiences that customers thought worthwhile enough to spend growing amounts of time and money on,” said the adviser.
Today, that strategy remains intact, but more important Apple is commanding a key new realm, having developed over a dozen custom processors and integrated circuits, since launching its “A-series” processors. For example, one it produced in 2017 provided the iPhone X with enough power to operate FaceID 3-D algorithms, used to unlock phones and make digital payments.
“Apple has effectively created a semiconductor business that rivals and even surpasses some of the most established semiconductor-focused businesses in the industry,” said Wedgewood. “Apple continues to differentiate through vertical integration, which has been a hallmark of Apple’s long-term strategy to grow and capture superior profitability. It is difficult to predict what new products will be unveiled; however, we think this strategy should continue to serveshareholders quite well.”
Other top positions recommended by Wedgewood include telecom group Motorola /zigman2/quotes/203308192/composite MSI +6.82% , another tech stalwart Microsoft /zigman2/quotes/207732364/composite MSFT +2.26% and retailer Tractor Supply /zigman2/quotes/202009274/composite TSCO +2.71% .
Here’s a final comment from Wedgewood about the stock storm it sees brewing. “The graphic below reminds us that when speculation reigns, markets can go far higher than what seems sober,” but when they fall “markets will repeat their long history of falling faster and further than what seems sober.”
“Long term investors should root for such downside. Such times are opportunities to improve portfolios. Our pencils are sharpened for opportunities as Mr. Market serves them up.”
Microsoft shares are slipping after the tech group confirmed it will buy Activision Blizzard /zigman2/quotes/200717283/composite ATVI +0.47% in a $68.7 billion cash deal . The gaming group’s shares are flying, along with those of rival Electronics Arts /zigman2/quotes/206954087/composite EA +3.30% .
Goldman Sachs /zigman2/quotes/209237603/composite GS +2.53% added to a disappointing batch of bank results from last week, with shares down as earnings came up short , with Charles Schwab /zigman2/quotes/201281754/composite SCHW +1.02% also falling on gloomy results. Kinder Morgan /zigman2/quotes/208455654/composite KMI +1.68% and Alcoa /zigman2/quotes/200686102/composite AA +6.88% are still to come.
Airbnb shares /zigman2/quotes/222990650/composite ABNB +4.75% are slumping after ratings and target cut from an analyst who sees multiple headwinds and too-few catalysts.
The New York Empire state manufacturing index for January fell well short of expectations. A National Association of Home Builders index for the same month is still ahead.
An unpublished study by an Israeli hospital showed second Pfizer /zigman2/quotes/202877789/composite PFE -0.93% -BioNTech /zigman2/quotes/214419716/composite BNTX +0.53% or Moderna /zigman2/quotes/205619834/composite MRNA +5.95% boosters aren’t halting omicron infections . Separately, Moderna’s CEO Stephane Bancel said his company is working on a combined flu/COVID booster, while White House chief medical advise Dr. Anthony Fauci, said it’s too soon to tell if omicron will bring us out of the pandemic.