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AAPL, MSFT, and CSCO Drag Dow Jones Lower

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Oct. 2 2019, Published 3:41 p.m. ET

Technology giant stocks Apple (AAPL), Microsoft (MSFT), and Cisco (CSCO) fell 2.5%, 1.8%, and 2.5%, respectively, today. The Dow Jones Industrial Average fell close to 490 points or 1.82%. Investors remain concerned over the grim PMI data published by ISM yesterday. The Institute of Supply Management or ISM estimated the US PMI at 47.4% for September.

The PMI fell to a ten-year low last month. Last week, Trading Economics estimated Europe’s PMI at 45.6%. A PMI score below 50 indicates an economic contraction.

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Meanwhile, the Dow Jones has lost cover 800 points in the last two days. And it might fall lower as recession fears intensify. The S&P 500 ETF (SPY) is down close to 3% in the last two trading days. AAPL, MSFT, and CSCO account for 10.4% of the Dow Jones Index. They also account for 9% of the S&P 500 ETF.

AAPL stock trading below $1 trillion valuation

The 2.4% decline in AAPL today has bought the company’s market cap to $991 billion. We’ve seen how Apple stock has risen over the last month as analysts are optimistic about demand for its latest line-up of iPhones.

Despite the recent weakness, Apple has led gains in the Dow Jones and is up 39.3% year-to-date. Apple is one of the few tech stocks that could move higher despite market weakness. iPhone demand is strong, but Apple has also diversified its revenue streams over the years.

It has several subscription products including Apple Music, iCloud, and the recently launched Apple Arcade and Apple TV+. Apple is trying to gain traction in emerging markets—which you can see from the prices for Apple TV+ subscription plans.

Apple TV+ will cost $4.99 per month, which is much lower than peer streaming services. It will cost just 199 Indian rupees (less than $3) per month in India. AAPL didn’t increase the prices for its latest iPhones. This choice could attract new buyers and upgrades from existing iPhone owners.

Cisco has lagged the Dow and S&P 500 this year

The DJIA is up 12% in 2019 while the S&P 500 has returned 15%. Cisco has underperformed both indices. It’s up just 7% year-to-date. Comparatively, Microsoft has returned 32% this year.

MSFT has been a solid wealth creator over the years, and the stock has risen by an impressive 192% since October 2014. However, we all know tech stocks are most vulnerable in a downcycle and that they can destroy significant investor wealth. The high valuations for tech companies drag them lower in a recession.

In a CNBC interview last month, Morgan Stanley analyst Mike Wilson was bearish on the S&P 500. He expects the index to fall to 2,700 by the end of 2019, which is a 7% decline from the current price.

Chances of a recession are growing by the day. While PMI data is one of the big indicators, we know the yield curve inverted in August. The trade war continues to impact global economies—and China in particular. We’re seeing a massive slowdown in automobile markets around the world.

With so much chaos and volatility surrounding the stock markets, you’d be wise to expect a recessionary downturn sooner rather than later.

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