Apple’s sales slump sends US stocks tumbling

State Street Global Advisors chief investment strategist Michael Arone says tighter monetary conditions and the US-China trade dispute have contributed to slower economic growth.

Stocks on Wall Street slumped as weak US economic data and a rare sales warning from Apple sparked new worries of a global slowdown.

New data showed factory activity declined in December. This followed earlier news that China’s manufacturing activity contracted last month for the first time since May 2017.

Jefferies chief financial economist Ward McCarthy says the impact of Chinas slowing economy on the US is over-rated..

“The economic conditions in China have a more profound impact on US inflation than they do on US growth,” he says.

“We’d feel some pain from a global slowdown but the slowdown in Chinese economic activity doesn’t represent the same type of threat to the US economy that it does to other economies.”

Apple lowered its quarterly revenue forecast for the first time in more than 15 years. The move was prompted by ebbing iPhone sales in China.

Shares exposed to Apple also fell. Lumentum Holdings, which makes facial-recognition components for iPhones, lost 6%.

Apple competitor Samsung Electronics lost 3%, dragging the South Korean Kospi down 0.8%. Other popular tech stocks such as Facebook, Microsoft and Google parent Alphabet all fell at least 2.5%.

Apple, the worst performer in the Dow industrials, fell to the fourth-largest US public company by market value for the first time since 2010. Apples current market capitalisation is $US750 billion after hitting $US1 trillion in August.

Wall Street action
At the close of trading, the Dow Jones Industrial Average plummeted 660.02 points, or 2.8%, to 22,686.22, while the
 S&P 500 tumbled 2.5% to 2447.89, the worst start to a year by both indexes since 2000. 

The technology-heavy Nasdaq Composite shed 3.0% to 6463.50.

In corporate news, Bristol-Myers Squibb announced plans to buy cancer drugmaker Celgene for roughly $US74b, one of the biggest-ever deals in pharmaceuticals.

Overall, the merged company would have nine products with more than $US1b each in annual sales – most notably Celgene’s multiple myeloma drug Revlimid and Bristol’s lung-cancer treatment Opdivo.

Under the deal, Bristol will buy Celgene with a combination of cash and stock. The deal represents a 54% premium based on Celgene’s closing stock price on Wednesday. Bristol agreed to pay more later, if Celgene’s labs deliver three new approved drugs.

Bristol-Myers shareholders would own about 69% of the combined company, while Celgene shareholders would own about 31%. The cash portion will be funded through a combination of cash on hand and debt financing. The deal is expected to close in the third quarter.

Bristol investors were cool on the deal, sending the shares down more than 13%. Celgene was up about 24%.

Airline stocks fall
Nine of the 11 sectors in the S&P 500 fell. The technology sector shed 4.7%, with Apple dropping 10.0%. Low-risk stocks rose with the real-estate and utilities sectors being the only rises.

Airlines stocks fell, with Delta Air Lines down 8.6% after it said fare revenue didn’t climb as much as expected during the holiday travel season. It was the worst day for Delta shares in more than six years.

The selloff also hit other airlines. Shares of American Airlines fell 7.3% and United Continental 5.1%.

US Bank Wealth Management chief investment officer Eric Freedman says the stock market is trying to decipher whether companies are starting to curtail production plans due to slowing demand.

“The slowdown in global growth isn’t new news but what is a source of concern for investors is whether things are slowing more quickly than we thought and if that is starting to impact companies’ future plans,” he says. “That probably hasn’t been fully priced in yet.”

The yield on 10-year US Treasury note fell to 2.587% from 2.659% on Wednesday.

Oil price up
Oil prices continued their recovery but at a slower rate than Wednesday’s spurt. US crude futures for February delivery rose 0.5% to $US46.81 a barrel. Brent, the global benchmark, rose 1.3% to $US55.59.

Gold rose 0.8% to $US1291.80 an ounce.

State Street Global Advisors chief investment strategist Michael Arone says tighter monetary conditions and the US-China trade dispute have contributed to slower economic growth.

“Investors fear that the damage has already been done,” he says. “Until we find some stabilisation in earnings or economic data, these concerns are going to continue to swell.”

The Stoxx Europe 600 fell 1.0% with France’s CAC 40 dropping 1.7%, Germany’s DAX 1.6% and the UK’s FTSE 100 0.6%.

In Asia, Hong Kong’s Hang Seng Index fell 0.3%, China’s Shanghai Composite Index lost less than 0.1% and Japan’s Nikkei 225 shed 0.3%.