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Stocks

Apple’s ‘darkest day’ sends a shudder through US markets, falling sharply amid fears for China economy

  • The Dow closed 2.8 per cent down and the S&P 500 was off by 2.5 per cent
  • Apple shares had dropped about 10 per cent
PUBLISHED : Friday, 04 January, 2019, 12:35am
UPDATED : Friday, 04 January, 2019, 12:03pm

US stocks suffered heavy losses on Thursday, a day after Apple reported a slowdown in iPhone sales over the holidays in China, a hugely important market for the company.

The rare warning from Apple sent a shudder through markets and confirmed fears among investors that the world’s second-largest economy was weakening.

The Dow Jones Industrial Average fell 660 points, down 2.83 per cent.

The S&P 500 was off by 2.48 per cent and the Nasdaq was down by 3.05 per cent.

LATEST: Apple suppliers take another pounding in Asia markets

Apple’s stock plunged 10 per cent, erasing US$67 billion in value. Other big exporters including technology and machinery companies also took big losses.

Some of the worst drops went to chip makers that make components used in smartphones and other gadgets. The trade dispute, nearly a year old, threatens to snarl their supply lines and reduce demand for their products. Tariffs and other trade sanctions could add to their difficulties.

The losses deepened after a survey of US manufacturers also showed signs of weakness.

The losses deepened after a survey of US manufacturers also showed signs of weakness.

In a letter to shareholders on Wednesday, Apple CEO Tim Cook said iPhone demand was waning in China and would hurt revenue for the October-December quarter. Cook said Apple expects revenue of US$84 billion for the quarter. That’s US$7 billion less than analysts expected, according to FactSet.

Memo to Tim Cook: other factors to blame for sluggish iPhone sales in China

Apple’s warning, its first since 2002, deepened concerns about the Chinese economy, which had been showing signs of stress.

“For a while now there’s been an adage in the markets that as long as Apple was doing fine, everyone else would be OK,” said Neil Wilson, chief markets analyst at Markets.com. “Therefore, Apple’s rare profit warning is a red flag for market watchers. The question is to what extent this is more Apple-specific?”

Apple’s warning couldn’t have come at a worse time for stock market investors given the wipeout in late 2018, when many global indexes posted their worst performances in a decade amid concerns about the global economy and the prospect of further US interest rate hikes.

A weak report on US manufacturing was also weighing on the market. The Institute for Supply Management said its index of manufacturing fell to its lowest level in two years, and new orders have fallen sharply since November. Manufacturing is still growing, but at a slower pace than it has recently.

In times of market stress and volatility, there are some assets that traditionally do well as investors perceive them as safer to hold. US government bond prices, gold and high-dividend stocks like utilities all rose.

Trump urged to end ‘mutually damaging’ tariffs after iPhone sales hit

Apple stock has slumped 38 per cent since early October as investors feared a sales slowdown in China. The company also recently announced that it would stop disclosing how many iPhones it sold each quarter, and many investors felt that suggested the company was trying to hide signs that its sales were cooling off. Its stock fell to US$142.19.

“[I]n the modern iPhone era last night was clearly Apple’s darkest day in our opinion and represents a challenging growth period ahead for the company (and its investors),” Daniel Ives, an analyst at Wedbush Securities, said in a note to clients Thursday. The biggest fear for Apple investors, Ives said, is a customer base that stalls out, failing to grow over the next few years and triggering a “nightmare scenario decline”.

Some experts believe that the market volatility could eventually lead to changes in the policies that are concerning investors. The Fed, for example, could slow the pace of its interest rate increases if markets continue to drop. And US President Donald Trump could become more open to settling the trade dispute with China.

“It is a well-known fact that Trump perceives the markets as a true barometer of his presidency,” said Piotr Matys, a strategist at Rabobank International.

Additional reporting by The Washington Post

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