Why Apple Stock Plunge Caused Panic in US Stock Market

Apple shares plunged 9.9 percent on Tuesday, dragging the whole stock market down, with the Dow Jones Industrial average down 2.8 percent. Apple has slashed its revenue forecast for the first quarter of 2019 to $84 billion from between $89 billion and $93 billion, and the company blamed the downgrade on weak sales in the Chinese market. China accounts for about 20 percent of Apple’s global sales.

Apple complained that China's slowing economy and falling consumer purchasing power have led to the decline in the company's performance. China's economic slowdown is also thought to be a drag for many companies in the United States. Some western public opinion has shifted attention from the U.S. stock market drop to China's economic slowdown; this has led to a pessimistic prediction of the situation in China's consumer market in 2019.

Apple was hailed as a miracle when it reached a market value of $1.1 trillion at the end of August 2018, becoming the world’s highest market valued company at the time, but it quickly fell to less than $700 billion. As an iconic global leader of high-tech companies and one of the great American symbols, such dramatic turbulence in its share prices is obviously not a good sign for the U.S. economy. Therefore, Apple's one-day drop of nearly 10 percent on Thursday was much more frightening than the whole U.S. stock market's slip.

It is true that China’s economy is slowing down, but first of all, this was not the only reason that Apple downgraded its sales forecast in the Chinese market for the first quarter. Apple’s sales dropped by 1 percent in the Chinese market last year while its share price was increasing. Sales figures for Huawei, Apple’s main competitor in China, increased 28 percent during the first 11 months of 2018, and Xiaomi, another Chinese phone manufacturer, saw sales increase by 9 percent. China's economic growth has already been shifting gears for several years, and it does not make sense logically that good sales figures resulted from the high quality of the Apple phone itself, and that negative sales were only caused by China’s economic slowdown.

Apple must face the reality that its unique competitiveness is gradually diminishing. As a pioneer in the smartphone arena, Apple led the mobile phone revolution. However, Chinese phone manufacturers are gradually catching up with lower prices and functional improvements so their phones are no longer inferior to Apple phones. Local design now makes the phones more user friendly. Expensive Apple phones have lost their unique eye-catching appeal, and people have begun asking whether they are worth the money.

The domestic phone market covers all of China, and Apple phone sales market is clearly not as good. With Huawei and other phones starting to enter middle and the high-end mobile phone market, an increasing number of Apple phone users have switched to Huawei phones. Many Apple users have not switched because they have been locked in by Apple's operating system.

To be sure, if Apple does not come up with any new revolutionary designs or upgrades and continue to merely make piecemeal improvements, its sales in the Chinese market will most likely continue to decline, unless it massively cuts prices to compete with Huawei and other Chinese phone manufacturers.

Apple’s minor sales decline in the Chinese market has caused huge panic, so one can say that the second reason for the drop in its stock price is that the trade war has aggravated investors’ pessimism about Apple's future.

The White House has a basic position about the trade war situation. It believes the United States holds an absolute advantage over China due to the fact that China exports more to the U.S. than the U.S. exports to China. In addition, the fact that the United States is home to a large number of core technologies could further exacerbate the situation in that China’s losses could outweigh losses in the United States. The U.S. is not afraid to break off from China.

However, the actual situation is much more complicated than the predictions above, and the outcomes are not neatly understood, as even small movements in the market could have a huge impact on the economy. The interests of both sides are intertwined, and could involve complicated losses.

Primarily, the trade war has disrupted the supply chain, and it’s hard to tell who will pay the most after a series of revised tariffs. The trade war also interfered with expectations, shaking confidence and making it hard to know who will be hurt the most by broken confidences. The United States sanctioned ZTE and Huawei last year, and the trade war is having multiple effects. Apple is now clearly one of the victims of this mess.

Apple is too big and thoroughly globalized, so issues of a global market scale will certainly involve the company. The negative effects of the trade war are gradually emerging, generating all sorts of pessimistic expectations, and Apple's share price is paying for all the impacts one by one.

The turbulence in Apple's share price has triggered concern that the American prosperity bubble could burst this time. The market is far more sensitive than politicians because policymakers in Washington bet on America's economic prospects, while investors bet on their own money. 

After all, Apple ranks high in industry, having the most abundant technical resources, market access and means for making adjustments. Hopefully, Apple will not repeat the mistakes Samsung made with its phones in the Chinese market, and will find a way to solve its problems. Moreover, the United States has the largest collection of key resources. It needs to face reality and not fight the tide, but accept the possibility that the U.S. prosperity boom could collapse.