Apple’s shock downgrade rattles global stock markets

Share prices have fallen on all the world’s major stock markets after poor trading figures from the tech giant Apple and a sharp drop in US factory orders prompted fears of a global economic slowdown in 2019.

Apple shares lost more than 9% of their value on Wall Street after the company admitted in its first revenue warning to investors since 2002 that it was being badly affected by weaker growth, especially in China.

apple share price

With the Dow Jones industrial average closing down by more than 660 points (2.8%) in New York, Goldman Sachs said there could be more bad news to come from Apple and raised the possibility that it could be heading the same way as Nokia, which went from having the biggest share of the mobile phone market for most of the 2000s to selling its loss-making handset division in 2013.

“We see the potential for further downside to full-year 2019 numbers depending on the trajectory of Chinese demand in early 2019,” Goldman’s Rod Hall said in a note to clients.

Apple’s woes go far beyond the slowdown in the Chinese economy

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After becoming the first company ever to reach a trillion-dollar market valuation in August, Apple’s share price has taken a battering in the choppy financial market conditions since early October. On Thursday it was overtaken by Google’s owner, Alphabet, as the world’s third-largest listed company, after more than $60bn (£47.5bn) was wiped off its market value, taking it back below $700bn.

The gloomy news from the maker of the iPhone and the iPad came after trading closed in New York on Wednesday but triggered selling in Asian and European markets. Major share indices in Paris and Frankfurt dropped by more than 1.5% while the FTSE 100 in London closed 41.57 points lower at 6692.66.

When business resumed on Wall Street, the gloom was deepened by comments from Donald Trump’s chief economic adviser noting that Apple would not be the only casualty of the tariff tit-for-tat between the US and China.

“It’s not going to be just Apple,” Kevin Hassett, the chairman of the council of economic advisers, said in an interview on 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’s remarks came as a closely watched gauge of American manufacturing showed new orders falling by 11 points – its biggest drop in almost five years. Analysts said the ISM survey dovetailed with similar snapshots of Chinese and eurozone industry.

“We always believed 2019 would be a tougher year as the economy battles against more headwinds – namely the lagged effects of higher borrowing costs, the stronger dollar, the fading support from the 2018 fiscal stimulus and weaker external demand at a time of rising trade protectionism”, said James Knightley, an economist at ING.

He added that the poor survey data coupled with the turmoil on the financial markets made it likely that the US central bank, the Federal Reserve, would slow the pace of interest rate increases in the coming year. “Indeed, it is consistent with our view that the Fed will probably pause its policy tightening in the first quarter.”

The admission by Tim Cook, Apple’s chief executive, that the worse than expected sales in China had come as a surprise led to falls in the share prices of other companies seen as exposed to weaker Chinese demand.

In London, the luxury brand Burberry closed down nearly 6%. Concerns that slowing growth in China would reduce demand for metals hit mining firms, with Rio Tinto, BHP, Glencore and Antofagasta down between 1.3% and 4.8%.

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Companies supplying components for Apple devices also got clobbered, with the Cardiff-based chip manufacturer IQE closing down more than 6%.

“Apple reiterates worries that China and trade issues have not been resolved,” said Robert Pavlik, the chief investment strategist of SlateStone Wealth in New York.

“People are worried that if a big name such as Apple has to report a decline in earnings, who else can be protected from something like that?”

Robin Li, the chief executive of Baidu, the Chinese search engine, echoed Cook’s warning, reportedly writing in a letter to staff that “winter is coming”.