Its Over, page-13148

Last week on 19 June I posted this, but I think people are not taking this seriously enough.

This example shows how stock prices can suffer from both PE compression and EPS backwardation

Annual EPS to March 22 for Apple is $6.15, at current price of $131, it is trading at PE of 21.3x which has fallen from 31x

The average 5 year PE ratio for Apple from 2012-2015 was 13.73x , 2015 recorded a PE of 11.42x, note that these were not even bad years for the market.

If Apple can sustain EPS at $6.15 for March 23, and applying the average PE of 13.73x that gives a price of $84.44, that is a fall of 35.5% and with AAPL making up 6.7% of the S&P500 weighting, that would be quite a sizable impact.

But what if AAPL's EPS drops by 20%? OK at EPS of $4.92 x 13.73x = $67.55, which is still higher than its March 2020 lows but that equates to a 48.4% drawdown from current price of $131. This alone has the potential effect of a 3.2% drop on the S&P500
[Note that AAPL EPS for 2020 was $3.28, so this is above is higher than that]

AAPL Stock Price — Apple Chart — TradingView

The above example is meant to show you that major tech stocks in the US have yet to fully mean revert, and the mean reversion would be more nasty if they cannot meet guidance and can't achieve the growth that analysts have optimistically forecasted.
Stock prices in the US can get beaten down further from both PE compression and failure to achieve earnings growth. Under a recession scenario and given the above headwinds, we can expect that to materialise in the quarters ahead.

And for these reasons, without even contemplating systemic risks from credit market issues and crypto contagion, the general US market will have much difficulty to get out of the rut, until we truly know the score. The score is what will the new macro business landscape under higher rates and QT do to businesses and their profitability. The markets do not sufficiently yet account for this as much as negative narratives arising from Fed hawkishness and higher inflationary environment.

Now the update:
Q3 Apple earning release date 26 July 22
Now next quarter earnings estimate is just $1.1373, annualised is $4.55 (26% decline) which means at todays AAPL price, it is trading at 29.86x
And that is high, compared to its 5 year average from 2012-15 of just 13.73x
One analyst is projecting AAPL price to fall to $100 (PE 21.98x) that would be a $35 down on $135 today or 25.9% . I think that is even still too high.

The only reason AAPL may hold off any large fundamental fall in its stock price is that it has firepower to do Buy backs. And that would be the only reason why its stock price is not anywhere near where it ought to be.