What Apple’s first revenue decline in 13 years means for the stock market
Apple Inc.’s disappointing corporate results late Tuesday may be a bad omen for a skittish market fretting about the health of the U.S. and global economy.
Apple AAPL, -0.69% CEO Tim Cook pinned some of the blame for the Cupertino, Calif.-based company’s results on weakness in China and “strong macroeconomic” headwinds in a news release to partially explain why quarterly profits fell nearly 23% and revenue declined for the first time in 13 years.
Cook described the results as a “challenging quarter” during an interview with The Wall Street Journal after it reported corporate results after Tuesday’s close of trading.
Investors sent the company’s shares down as much as 8% in after hours trade, wiping out more than $40 billion of market cap, equivalent to nearly four times the value of Twitter Inc. TWTR, +3.86% which had a market cap of about $11 billion as of Tuesday’s close.
The performance from the world’s largest publicly traded company could be bad news for the broader stock market as investors fret about sluggish global growth ahead of a closely watched update to interest-rate policy from the Federal Reserve Wednesday and a policy decision from the Bank of Japan due Thursday. The Fed has been increasingly citing overseas-growth concerns as at least part of the reason the central bank has turned more dovish, slashing its earlier projection fro interest-rate hikes to two from four earlier in the year.
At its lows in after-hours trade, the decline in Apple’s shares would translate to a 60 point drop in the Dow Jones Industrial Average DJIA, +0.07% and potentially weigh on the broader tech market, which was already under pressure before Apple reported earnings. The S&P 500’s SPX, +0.19% tech sector was the second-worst performer among the index’s 10 sectors behind health care and the tech-heavy Nasdaq Composite Index COMP, -0.15% ended off 0.2%, weighed by worries about tech.
“Apple has been pulling down the Nasdaq in aftermarket trading already and the S&P to a lesser extent,” said Colin Cieszynski, chief market strategist at CMC Markets.
Apple’s revenue from China declined by 26% year-over-year, marking the worst regional performance for the company, as the following table shows:
At the same time, investors might not buy macroeconomic excuses for the results, instead pointing to stiffer competition and other factors more under Apple’s control.
But some market watchers are fretting over a slowdown in China and worry that the world’s second-largest economy will prove a drag on the U.S. market. China, however, is showing signs that a raft of policies meant to help revive its petering growth have gained some traction in recent months. It reported first-quarter gross domestic product of 6.7% compared with 6.8% during the same period last year—its slowest quarterly growth since 2009.
Critics like billionaire George Soros say China’s surging debt puts it on the brink of a crisis similar to one faced by the U.S. in 2008.
During an analyst call Tuesday to discuss its quarterly results, Cook appeared to deflect talk of the impact of China by stating that the company is focused on growth in India.
“India is where China was seven to ten years ago,” he said.
Source: MarketWatch
