Could an Apple earnings miss today trigger a market selloff?

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Apple Inc has been having a rough few weeks.Associated Press

Apple Inc. has fallen out of favour among investors in recent weeks, and the selloff could continue if the tech giant disappoints on Thursday, potentially bringing the broader market down with it.

When Apple reports first quarter results for fiscal 2018 after the bell, as is often the case, the market will be focused on the iPhone. Recent reports suggest Apple asked its suppliers to cut production of the iPhone X dramatically in response to weaker-than-anticipated sales.

Tim Long, a communications equipment and hardware analyst at BMO Capital Markets, is among those that believe Apple’s guidance for the current March quarter (Q2) will be well below consensus.

“We are more concerned by a secular change for iPhone,” he told clients. “Following 10 years where average sales prices (ASPs) have generally moved higher, we believe prices will plateau as with the rest of the industry.”

Apple shares have declined about seven per cent in the past two weeks.

Bloomberg

Long downgraded his recommendation on Apple to market perform from outperform, and cut his price target on the stock to US$162 from US$199, also forecasting no year-over-year growth in the China market. That would represent a sharp reversal from 12 per cent growth in Q4.

Apple deserves praise for successfully pushing prices higher, despite the flattening trend among others in the industry. BMO estimates that approximately 30 per cent of iPhones will cost more than US$900 this year. However, Long doesn’t see that figure going any higher, particularly since just 12 per cent of smartphones globally sell for more than US$600.

“We still view the iPhone base as growing, and the devices are on average getting older,” the analyst said. “However, without a compelling product cycle in September, we may see a slow upgrade cycle once again.”

With this in mind, Apple’s recent share price performance looks somewhat like early 2016, when the stock languished. Later that year, however, when investors started looking ahead to iPhones with features such as OLED screen and Apple’s 10-year anniversary smartphone, the shares moved higher.

Unfortunately for Apple, that sort of catalyst is missing today.

“No such product is on the horizon now,” Long said.

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