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This tech comeback can't last without Apple's help, history shows

Key Points
  • The S&P 500 tech sector has never outperformed the S&P 500 when Apple fell more than 30 percent, Bank of America Merrill Lynch says.
  • Apple's stock has plummeted 36.2 percent since Oct. 3, when the stock hit a 52-week high of $233.47.
Apple staff members celebrate as customers coming the Wangfujing store on October 20, 2012 in Beijing, China.
Feng Li | Getty Images News | Getty Images

The tech sector has come roaring back — Amazon has risen more than 10 percent and Netflix has surged 19 percent in the new year. But if history is any guide, this comeback won't last without Apple's help.

In fact, the S&P 500 tech sector has never outperformed the when Apple fell more than 30 percent, according to Bank of America Merrill Lynch.

"There have been three big sell-offs in Apple ever since it became the world's biggest company in 2011," and every single time, the tech sector has underperformed the broad market, the bank's Ohsung Kwon said in a note Tuesday.

Apple's stock has plummeted more than 36 percent since Oct. 3, when the stock hit a 52-week high of $233.47. Shares of the iPhone maker took a huge hit when it slashed revenue guidance on Jan. 2, blaming the slowdown on weaker sales in China. The stock tanked 15 percent on that day.

But when Apple finally finds a bottom, there will be "a big rally" in tech, the analyst pointed out.

Technology has historically outperformed the market when Apple bottomed. The sector topped the S&P 500 over the next 12-month period by 7.2 percent and 21.9 percent when Apple troughed in 2013 and 2016, respectively, according to the bank.

Although seeing Apple's negative impact on the tech sector, Bank of America still finds attractive valuations in tech companies, arguing they are already discounting risks from the trade war.

"We think the market is already pricing in much of the downside risk for tech, suggesting attractive risk-reward ratios from here, especially if we get a favorable trade deal with China. We remain overweight tech," the analyst said in the note.

There's more optimism that Washington and Beijing could move forward on a trade deal as President Donald Trump tweeted on Tuesday that U.S.-China trade talks are "going very well."

The tech-heavy Nasdaq Composite is up 3 percent in January, posting its eighth positive session in nine on Tuesday through the first hour of trading with a bounce in the so-called "FAANG" names. The S&P 500 has gained 2.7 percent in the new year.