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US stocks took another hit after the December ISM US manufacturing index plunged by the most since October 2008. The closely-watched barometer of factory activity tumbled to a two-year low, providing further evidence of slowing growth and pain from the US-China trade war. ISM said manufacturing activity is still growing, but suffered a “sharp decline” last month.
“Awful, and worse to come,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote to clients on Thursday. “Trade wars are not easy to win.“
Apple’s bombshell
Apple’s stark warning reinforced multiple investor concerns. First, it suggests that analysts may be too optimistic about corporate earnings in the challenging global environment. And Apple’s trouble navigating China backs fears that the slowdown in the world’s No. 2 economy is already hurting profits for multinational companies.
“Trade tensions between the US and China could take an increasing toll on companies in both nations,” UBS strategists Christopher Swann and Kiran Ganesh wrote in a note to clients on Thursday.
Even Trump officials are warning of more China trouble ahead for Corporate America. Kevin Hassett, chairman of the White House’s Council of Economic Advisers, told CNN’s Poppy Harlow on Thursday that “a heck of a lot” of US companies with sales in China will follow Apple’s footsteps by downgrading their outlooks.
“It’s not going to be just Apple,” Hassett said, adding that sales will recover if trade negotiations with China are successful.
Trade war fallout
The Apple news is “feeding fears of slower global growth and further risk aversion,” Kit Juckes, strategist at Societe Generale, wrote in a note to clients on Thursday. Juckes said it also supports “soft” manufacturing numbers out of China in recent days showing activity has contracted.
And Apple CEO Tim Cook offered some of the starkest evidence yet of the negative consequences of the US-China trade war. Cook said “rising trade tensions” with the United States are impacting China’s economy. The trade uncertainty “appeared to reach consumers,” with customer traffic in China declining, he said.
But some analysts cautioned that Apple’s troubles may be more company specific than global in nature. Apple’s iPhone price hikes have hurt demand, especially as customers upgrade their smartphones less frequently.
“The global market for +$700 phones has clearly topped out,” Nicholas Colas, co-founder of DataTrek Research, wrote to clients on Thursday.
Jobs report is next
“For all the recent volatility in financial markets, the US economy remains in a healthy shape going into 2019,” Andrew Hunter, senior US economist at Capital Economics, wrote in a report on Thursday.
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