Apple hit a grim milestone this week, falling about $1 trillion below a peak reached in 2022.
Shares of the company have rallied in recent days, but the massive drop in value reflects tough economic times for companies in the tech industry and beyond.
The tech-heavy Nasdaq fell about a third in 2022, while the broader S&P 500 fell 19% during this period. Apple’s performance, meanwhile, fell just between these two indexes, falling 27% over the year.
The decline of a longtime stalwart like Apple highlights trends that are throwing the U.S. economy into uncertainty in 2022, leaving it in a precarious position heading into the new year, analysts told ABC News.
Forces that have squeezed Apple and the wider economy include a shift in pandemic-era consumption that has reversed the fortunes of businesses large and small, a near-historic rise in inflation that has sparked an aggressive response from the Federal Reserve and supply chain disruptions that have subsided. but persisted with zero-COVID lockdowns in China, analysts said.
“You’re talking about $1 trillion wiped out of the economy in one action – that’s a big number and it’s not something that should be ignored,” said Angelo Zino, senior industry analyst at CFRA Research, at ABC News.
Apple did not immediately respond to a request for comment.
Why Apple lost nearly $1 trillion in value in 2022 and what that says about the state of the US economy.
Consumer tastes change as pandemic fears fade
Like many tech companies, Apple has suffered a major consumer shift away from the pandemic-era focus on buying goods.
At the height of the pandemic, hundreds of millions of people around the world facing lockdowns replaced restaurant spending with couches, exercise bikes and tech products. In the first three months of 2021, for example, Apple’s earnings more than doubled from the same period a year earlier.
“People were buying computers from home, playing with gadgets and consumer electronics — whatever Apple sells,” Mark Zandi, chief economist at Moody’s Analytics, told ABC News.
However, as pandemic fears subsided, consumers prioritized spending on the experiences they missed while cooped up indoors. This fall, demand for personal computers fell nearly 20% from a year earlier, research firm Gartner found.
This change in taste hurt the results of Apple and many technology companies, Zandi said.
“Since the pandemic ended, people have shifted their spending from consumer electronics to travel, restaurants and ball games,” he said.
Inflation rises and aggressive interest rate hikes ensue
Apple has also faced challenges rooted in rapid price increases and the Federal Reserve’s policy response, which has slowed some sectors of the economy and hurt the stock market.
At its peak, inflation reached 9.1% in June, a level not seen more than four decades ago. To curb rising costs, the Federal Reserve undertook an aggressive series of interest rate hikes.
A rise in the benchmark interest rate raises borrowing costs for consumers and businesses, which in theory should reduce inflation by slowing the economy and eating away at demand. This means that borrowers, whether businesses or individuals, find it harder to access loans, the engine of economic activity.
Because interest rate hikes typically weigh on the economy and corporate earnings, investors flee. That pain is particularly acute for tech stocks like Apple because investors pick them in the first place for strong earnings growth, which seems increasingly unlikely as interest rates rise, Zandi said.
“Investors are buying their stocks because of expected long-term earnings growth,” he said. “They’re hit hard.”
High prices and rising borrowing costs can also weigh on consumers, eating away at savings and putting aside spending on items like iPhones or MacBooks.
Consumer spending has held up for much of the year thanks in part to savings from the pandemic, but the cushion appears to have waned in recent months. The personal savings rate fell to 2.3% in October, the lowest rate in nearly two decades, according to Commerce Department data.
“The state of the consumer is extremely important to a company like Apple,” Zino said, adding that the company could withstand a potential drop in consumer spending because products like the iPhone are viewed by many as necessities.
Supply chain bottlenecks
Like many companies, Apple has had to deal with pandemic-imposed supply chain disruptions that have hampered production and caused delivery delays.
While the worst of the global supply backup has eased, headwinds remain, particularly in China.
The manufacturing giant’s “zero-COVID” policy has triggered intermittent shutdowns, forcing factories to close and production to halt.
“Apple has huge operations in China,” Zandi said.
At China’s largest iPhone factory in the central city of Zhengzhou, workers have vanished amid fears that executives will impose a mandatory quarantine due to a recent COVID outbreak.
Overall, China’s zero-COVID policy has led to significant iPhone shortages ahead of the holidays, according to a report by Wedbush Securities analyst Dan Ives last month. Shortages have reached up to 35% of typical holiday inventory at some stores, causing overall iPhone demand to outstrip supply by a ratio of 3 to 1, he found.
In recent weeks, China has eased its zero COVID policy, offering a glimmer of hope for companies with major supply hubs in the country, such as Apple, analysts said.
Shipment delays for some China-related iPhone models should be “largely resolved” by January, Zino said.
While many expect a wave of coronavirus infections as the country reopens, manufacturing output could return to normal in the spring or summer of 2023, Zandi said.