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 8%.
The Dow Jones Industrial Average plunged as much as 677 points about an hour into trading, then began climbing back and closed down 656 points or nearly 3 percent.
Apple stock plummeted some 10 percent, erasing $72 billion in value. Other big exporters, including technology and heavy-machinery companies, also took big losses. Some of the worst drops were at chipmakers that make components used in smartphones and other gadgets.
“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.”
Investors were also unsettled by a report Thursday that showed signs of weakness in U.S. manufacturing.
In a letter to shareholders Wednesday, Apple CEO Tim Cook said iPhone demand is waning in China and would hurt revenue for the October-December quarter. Cook said Apple expects revenue of $84 billion for the quarter. That’s $7 billion less than analysts expected.
The S&P 500 dropped 60 points to 2,449. The Dow slid 642, or 2.7 percent, to 22,707. The Nasdaq, which has a high concentration of tech stocks, retreated 185 points, or 2.8 percent, to 6,482.
“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?”
The bleak Apple news was offset by some positive headlines 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.
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.
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.
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.
