Apple is feeding some of Wall Street’s biggest fears.
US stocks dropped sharply on Thursday morning after Apple warned it will badly miss its quarterly sales forecast because of weakening growth and trade tensions in China. Apple (AAPL), among the world’s most widely held stocks, plummeted 9%.
The news sent shudders through global markets. The Dow declined nearly 600 points, or 2.5%, while the S&P 500 retreated 2%. The Nasdaq plunged 2.5%.
US stocks hit session lows after the ISM US manufacturing declined in December more than feared. ISM said factory activity is still growing, but suffered “sharp decline” last month.
Apple’s stark warning reinforced multiple investor concerns. First, it suggests that analysts may be too optimistic about corporate earnings in the challenging global environment. And Apple’s trouble navigating China backs fears that the slowdown in the world’s No. 2 economy is already hurting profits for multinational companies.
Shares of China-sensitive stocks like Boeing (BA), Tiffany (TIF), Deere (DE) and Qualcomm (QCOM) dropped on Thursday.
The Apple news is “feeding fears of slower global growth and further risk aversion,” Kit Juckes, strategist at Societe Generale, wrote in a note to clients on Thursday. Juckes said it also supports “soft” manufacturing numbers out of China in recent days showing activity has contracted.
And Apple CEO Tim Cook offered some of the starkest evidence yet of the negative consequences of the US-China trade war. Cook said “rising trade tensions” with the United States are impacting China’s economy. The trade uncertainty “appeared to reach consumers,” with customer traffic in China declining.
But some analysts cautioned that Apple’s troubles may be more company specific than global in nature. Apple’s iPhone price hikes have hurt demand, especially as customers upgrade their smartphones less frequently.
“The global market for +$700 phones has clearly topped out,” Nicholas Colas, co-founder of DataTrek Research, wrote to clients on Thursday.
In any case, Apple suppliers predictably plunged on the developments. Cirrus Logic (CRUS), Skyworks Solutions (SWKS) and Broadcom (AVVGO) were all sharply lower. Best Buy (BBY), another company that relies on Apple products, declined 3%.
Investors failed to find much solace in better news elsewhere. ADP said on Thursday that the United States added 271,000 private-sector jobs in December, easily topping estimates. And Bristol-Myers Squibb (BMY) showed strong confidence by shelling out $74 billion in a blockbuster deal to acquire drug maker Celgene (CELG). Shares of Celgene spiked more than 30% on the mega takeover, while Bristol-Myers fell.
Still, Thursday’s selloff shows how many of the same fears that made 2018 the US stock market’s worst in a decade are still roiling markets. Stocks started 2019 with a tumble at Wednesday’s opening bell before reversing course and closing solidly higher. The Nasdaq extended its win streak to five days, its longest since August.
Attention will now turn to Friday’s US jobs numbers. A weak December report could reinforce jitters that the US economy is slowing. On the other hand, stronger-than-expected payroll growth could remind investors that a slowdown is not the same thing as a recession.
“For all the recent volatility in financial markets, the US economy remains in a healthy shape going into 2019,” Andrew Hunter, senior US economist at Capital Economics, wrote in a report on Thursday.