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Financial News

Jan 3, 2019

Apple Stock Just Went Down A Lot. What Happened?

By Team Stash

Apple CEO Tim Cook’s letter set off fears that global economic growth is slowing.

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Global stock markets plummeted on Thursday after iPhone maker Apple announced it would not meet its sales targets for the first quarter of 2019.

The Dow sank 650 points in morning trading, and the tech-heavy Nasdaq sank nearly 3% as Apple stock lost 10% of its value*, according to reports.

On Wednesday, Apple Chief Executive Tim Cook announced in a shareholder letter that poor sales in China for its Mac, iPad, and iPhone products would result in significant revenue losses.

“Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall,” Cook wrote.

The letter set off fears that global economic growth is slowing, which could affect the financial prospects of other large U.S. companies.

What’s going on?

China is the second largest economy in the world, after the U.S. Not only Apple, but numerous other companies including General Motors, KFC, and Starbucks have staked much of their sales growth there in recent years. This spring, Starbucks even announced a surprising plan to open a store every 15 hours in China through 2022.

But China’s economy has been slowing, as consumer demand in that country has shrunk and the trade war with the U.S. has made its exports to the U.S. more expensive.

Rival tech firms such as China’s Huawei have also released cheaper alternatives to Apple’s high-end iPhone.

Meanwhile, the size of Apple’s revenue stumble is large. Cook forecast revenue of $84 billion in the first quarter, down from earlier estimates that ranged between $89 billion and $93 billion.

More background

While volatility has returned to the stock market, it’s important to keep in mind that the U.S. economy is still strong. The unemployment rate is at a 50-year low of 3.7%.

The Federal Reserve has also been increasing interest rates to keep inflation in check as the economy has gathered steam. And signs are that the holiday shopping season was robust, indicating that consumers are out in force and buying.

Apple wasn’t the only tech stock to get hit on Thursday. Shares of Intel, Microsoft, and shares of all 30 computer chip makers also fell.

Apple is one of the wealthiest companies in the world, attaining a record market cap of $1 trillion in 2018. News of its projected sales miss has helped to shave $450 billion from its peak value.

*As of January 3, 2019

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