Taking stock of Apple’s terrible week

Let’s recap the travesty that has unfolded over the past couple of days.

Apple suckerpunched the rest of tech with its warning that caught everyone by surprise (not the cut itself so much, but the magnitude of it).

Yesterday, with global shares roaring back, the iPhone maker clawed back some of its losses.

However, after a few tumultuous months, Apple’s value has slid far away from the $1tn. It is now worth $674.75bn (€593bn), meaning that $325bn has been wiped from its market value since the shares hit their all-time high in October.

And from early December alone the iPhone maker has lost almost 19% of its stockmarket value. However, it most definitely won’t be the only US company hurt by the US-China trade war.

FedEx showed us this last month just how bad the trade frictions are impacting business, but you can now take White House Council of Economic Advisers chairman Kevin Hassett’s word that it’s going to get worse for a whole swathe of companies if we remain at a stalemate: “It’s not going to be just Apple,” he told CNN.

“There are a heck of a lot of US companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China,” Hassett said.

“The Chinese economy is slowing in a way that I haven’t seen in a decade,” he said, adding it’s “going to be bad” for US companies that have a lot of business in China.

So, um, that’s a pretty cheerful outlook, especially with what looks like minimal movement on the negotiating front between the US and China.

Apple’s forecast cut wasn’t a surprise to those investors that heeded advice from analysts and shortsellers who raised red flags as early as last summer, just as the iPhone maker’s valuation surpassed the $1tn mark.

New Street Research’s Pierre Ferragu stepped out as the lone wolf in late August to warn investors of a looming “air pocket” in demand.

He cut his rating on the stock to sell, predicting “material disappointment” in 2019. That call was vindicated as the shares plunged 10% in their worst drop in almost six years.

Goldman Sach’s Rod Hall in October said Apple was showing signs of rapidly slowing consumer traction in China ahead of its fiscal fourth-quarter earnings report.

Apple’s heavy reliance on increasing the average selling price of its iPhone units in an effort to offset slowing demand eventually prompted Guggenheim to downgrade the stock to the equivalent of a hold rating. In November, the firm concluded the tactic was no longer enough to sustain growth.

In December, Rosenblatt Securities hinted to clients that the tech company would cut iPhone production by four million units.

Analyst Jun Zhang anticipated the cut would come from the work of Chinese companies said to have begun subsidising employees for buying Huawei devices after chief financial officer Meng Wanzhou was arrested at the behest of the US.

Dan Niles, a hedge fund manager at AlphaOne Capital, said his short case was bolstered when the company said in early November it would stop reporting unit sales for iPhones, iPads, and Macs beginning in fiscal 2019. He said that many of Apple’s problems were self-inflicted, including iPhones that are too expensive for emerging markets. There is a slew of large US-based companies (market cap above $5bn) with heavy exposure to China (more than 10% of quarterly revenue attributed to the region) that investors may expect a ratcheting down of numbers, including many semi- conductors like Applied Materials, Teradyne, and Texas Instruments, and gaming names like Wynn Resorts and Las Vegas Sands.

However, in the interim, we also have a US government shutdown that is likely to be the longest ever.

Other not very good or very bad things that happened were the China Caixin PMIs (China’s manufacturing survey), which were downright ugly, and the US ISM Manufacturing, which was worse.

Meanwhile, the airlines were a hot mess after Delta cut its revenue view for the second time in two months.

Plus Ford’s car sales whiffed, but the bigger news was the carmaker joining GM by forgoing monthly reporting for quarterly.

Less transparency isn’t exactly what investors want to see, especially after what happened to Apple shortly after the company decided to stop reporting iPhone unit sales. And yet, it’s pretty amazing that we haven’t retested the December lows.

Moreover, the S&P 500 is still up more than 4% since Christmas and added to those gains on Friday as the US non-farm payrolls survey suggested the US was still creating many jobs.

As for what to expect next week, the resumption of US and China trade talks are front and centre, while the deep unknown of earnings pre-announcements, revenue forecast cuts (thanks a lot, Apple) and the exhausting saga over the US government shutdown are fresh in trader’s minds.

As for earnings, we’ll get numbers from two important South Korean companies in electronics behemoth Samsung and flat panel TV maker LG Electronics as well as Indian IT services name Infosys.

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