The Dow took another hit Thursday, suffering a steep drop after Apple warned about slowing revenue and iPhone sales in China and a key gauge of U.S. manufacturing in December came in weaker than expected, heightening investor concerns about slowing global growth.
Around 10:45 am, the Dow, coming off its worst year since 2008, was down around 625 points, or 2.7 percent, and the broader Standard & Poor’s 500 stock index was 2.3 percent lower. The technology-dominated Nasdaq was down by 2.7 percent and back into bear market territory, or down 20 percent or more from its recent high.
In a letter to investors after the stock market closed Wednesday with small gains on the first trading day of 2019, Apple CEO Tim Cook said the company – one of 30 stocks in the Dow Jones Industrial Average – now expects revenue of $84 billion in the quarter ending Dec. 29. Apple had anticipated revenue of between $89 billion and $93 billion for the quarter.
The news had a bombshell effect on Apple shares, which were down more than 9 percent at $142.43, as well as the broader U.S. stock market.
Wedbush analyst Daniel Ives called it “Apple’s darkest day in the iPhone era,” adding “the magnitude of the miss with China demand …was jaw dropping.”
“Apple earnings warning rocks global shares,” Dean Popplewell, vice president of market analysis at currency trading firm OANDA, noted in a report before the opening bell. Shares were down 0.9 percent in Europe and slipped 0.25 percent in Hong Kong. The bulk of the losses were suffered by global tech companies that supply components to Apple for its iPhone.
Apple’s sales warning, which wiped out more than $70 billion of its stock’s value overnight, is the latest sign that tariffs and trade tensions between the world’s two largest economies are starting to weigh on broader economic growth as well as company-specific results.
Cook’s warning follows a similar message in December from package-delivery giant FedEx, which warned of a global slowdown as it slashed its global forecast for 2019.
“(President) Trump’s U.S protectionist confrontation is starting to have an impact on economic activity,” OANDA’s Popplewell said.
Cook cited slowing growth in China, the world’s second-biggest economy, and negative fallout from the trade dispute between the U.S. and Beijing, as reasons for the iPhone sales slowdown.
“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” Cook said in his note.
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Market sentiment was also hurt by a drop in the ISM manufacturing index in December to 54.1, a level that was below expectations and signaled that business conditions in the U.S. are slowing.
“The sharp fall … echoes the deterioration in the other manufacturing surveys and suggests that the slowdown in global growth is starting to take a more serious toll on the U.S. factory sector,” said Andrew Hunter, senior U.S. economist at U.K.-based Capital Economics.
Apple’s recent stock market drop marks a stunning reversal of fortune for what once was America’s most valuable company. On Aug. 2, 2018, powered by iPhone sales, Apple became the first publicly traded U.S. company to hit a market value of $1 trillion. After its Thursday swoon, Apple’s market capitalization is now below $700 billion.
The popular stock’s big decline adds to the pain individual investors have suffered since the U.S. stock market’s December rout nearly pushed the S&P 500 and Dow into an official bear market, or 20 percent drop from a prior high.
Apple’s stock is widely owned by investment funds, as well as workers ranging from teachers to electricians to lawyers. With a roughly 3.5 percent weighting in the S&P 500 at the end of 2018, Apple is the second-biggest company behind Microsoft in the large-company stock index, an investment most people own in their 401(k)s via index funds and other types of funds.
Slowing earnings growth in 2019 was viewed as a key risk for the stock market heading into the year, and Apple’s lower forecast could exacerbate those fears.
Recent stock market weakness, experts say, has been signaling slower profit growth going forward.
“Economists and pundits that refused to listen to the market are now finally starting to come around to that realization,” Gary Kaltbaum, president of Kaltbaum Capital Management, told USA TODAY.