2019 has only just begun and we’re already in a whirlwind of crashing stocks and apocalyptic headlines. As it stands, real estate is falling, bonds are down, the US-China trade war continues to rage on and investor sentiment is very bad indeed.
So far, we really haven’t had much respite from the attitude of doom and gloom plaguing the air.
In fact, even those companies which most of us would consider unshakable have been recoiling at the sight of the crumbling markets.
Apple, a tech juggernaut who occupies the same status as marketing gods like Coca-Cola and Facebook, is one such company feeling the pinch.
As of this week, the tech giant has experienced a 35% decline since its high in October last year — a loss of $452 billion in market capitalisation.
The latest drop of 9% occurred on Thursday and wiped off about $15 per share. To put this into perspective, Warren Buffett’s Berkshire Hathaway lost about $3.8 billion on its Apple stocks on Thursday alone.
Why such a dramatic drop for Apple?
Well for one, iPhone sales in China have been extremely weak. Demand is waning and consumers in the Middle Kingdom just aren’t buying what Apple is selling anymore — even though Apple’s two latest iPhones were only unveiled a handful of months ago.
As a result, Apple’s CEO Tim Cook said the company expects revenue of US$84 billion for the quarter, which is US$7 billion less than analysts expected.
As he confirmed in an unexpected letter to investors on the Apple website:
‘While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China. In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.’
Of course, the trade war between the US and China is also likely to blame for this downgrade. In times of grave uncertainty, multinational companies may feel the pinch when it comes to their supply lines and demand for their products. As Chief Investment Officer of Cresset Wealth Advisors, Jack Ablin, explains:
‘When the largest and second-largest economies in the world get into a trade dispute, the rest of the world’s going to feel the effects. That’s what we’re seeing now.’
Apple isn’t faultless however. Many have also been blaming a lack of innovation on the company’s part. Rather than coming up with more of the creative, fresh marketing campaigns that they were well known for the early 2000s, Apple has begun to take their customers for granted. Yes, new iPhones have been released. But what new features do they have to offer? With all of the competition in the world of smartphones, the iPhone is no longer a unique product. And there seems to be little originality when it comes to creating new features or engaging ad campaigns.
All that said however, there could be light at the end of the tunnel for Apple and the tech market at large.
A dip before the rally?
As Apple typically stands as a benchmark for the performance of the technology sector, it’s no surprise that tech stocks in the S&P 500 have also fallen 17% in the same timeframe. Overall, they have underperformed the rest of the index by 5.3%.
However, it’s important to note that this isn’t Apple’s first dance with destruction. In late 2012 to early 2013, the stock fell 44%. It fell by 32.1% again in February 2015 to May 2016. Both times the tech sector crashed and burned along with Apple — and then bounced back again after Apple’s recovery.
Past performance is not always a good indicator of future results. But if you do want to take precedent into account, this may be cause for optimism. This dip could just be the precursor for another rally once the dust settles. After all, one bad quarter is not reflective of Apple’s huge earnings power.
If Trump and Xi Jinping can get their act together, and if Apple can find new avenues for growth this year, we could see the charts heading upwards once again.
We’ll have to watch and see.
This week in Money Morning
Imagine losing US$2 billion overnight. That’s the reality Apple is coming to grips with, after the stock fell more than 35% from its high in 2018. Apple’s CEO Tim Cook chalks the drop up to a dramatic slowdown in Chinese sales. But Harje believes there’s something more sinister at work here.
To read Monday’s article, click here.
The US-China trade war is taking effect. The Middle Kingdom has already shown signs of falling. And as an export-led economy, it makes perfect sense. As Harje wrote on Tuesday, the best thing for China to do now is to funnel as little new cash into their manufacturing sector as possible. But will they take heed of this warning?
To find out more, click here.
Among the FAANGs (Facebook, Apple, Amazon, Netflix and Google), Netflix is the clear winner in 2019, for now. The stock is already up 23%. And we’re just in the second week of 2019. On the back of their Golden Globes wins, Netflix added billions more to their market cap. And as Harje questioned on Wednesday, is it a good investment?
To learn more, click here.
Strangely, China doesn’t like genetically modified organisms (GMOs). That’s despite the fact that they house a fifth of the world’s population and have just 7% of the world’s arable land. Not only is China feeding more than a billion people, they’re also feeding billions more pigs, cows and chickens. But as Harje posited on Thursday, if China changed their stance, it could end the trade war faster than expected.
To read the full story, click here.
Have you been keeping up with all the high-tech news at the Consumer Electronics Show (CES)? At the convention are names like Google, NVIDIA and Sony. They’re all strutting the coolest futuristic projects they’ve been working on. And so far, they’re proposing to completely change the game when it comes to pain relief, GPS and farming…
To read Friday’s full article, click here.
Until next week,
Editor, Money Weekend