An article in the Wall Street Journal in 2016, observed that the price of Apple’s stock had started to decline a year before “when fears of an iPhone slowdown surfaced.” At the time the article was written, the author claims: “The iPhone slump is now more than priced in.”
a. Why would the price of Apple’s stock begin to fall just because investors anticipate that iPhone sales might slow down in the future? Wouldn’t we expect investors to wait until sales actually do slow down before selling the stock? Briefly explain.
b. What does the author mean when he describes the decline in iPhone sales as being “priced in”? If iPhone sales continue to decline as investors expect them to, will the decline lead to a further fall in the price of Apple’s stock? Briefly explain.