Trump Took on the Fed, but What Can He Do About Apple?

BY MICHAEL HIRSH

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What’s the best recipe for a market panic in the current environment? When one of the world’s biggest companies suddenly announces to a badly battered market already jittery over China that first-quarter revenue is expected to dive largely because of—you guessed it—China.

That’s what happened on Thursday, when the Dow Jones Industrial Average dropped 660 points following a dire and unusual note from Apple CEO Tim Cook, who said revenue was expected to come in at least $5 billion lower than its earlier projection of $89 billion to $93 billion. Cook said the reasons for the shift in picture included a weakening economy in China and lower-than-expected iPhone revenue—“primarily in Greater China.” He also said that upgrades to new iPhone models in other countries were “not as strong as we thought they would be.” The Nasdaq stock exchange, which Apple is part of, dropped more than 200 points the same day.

But the larger message was this: U.S. President Donald Trump’s trade war with China is finally hitting home on Wall Street as well as Main Street, and there’s no end in sight. In an interview with CNBC, Cook squarely placed the blame on “the trade tensions between the United States and China,” saying that was having a serious knock-on effect given that China’s economy is already slowing faster than expected, and that China represents a substantial portion of Apple’s revenue. Add to that concerns that the global smartphone boom is cooling and Apple hasn’t signaled that it has another major tech innovation in the pipeline, and you have a selloff. And not just any selloff: Apple is considered a high-tech bellwether, and any upstream suppliers and downstream services companies are going to get hit too.

Results of a private survey on China’s manufacturing for December—the Caixin/Markit Manufacturing Purchasing Managers’ index—showed a reduction in factory activity for the first time in 19 months. Consumer spending is down as well since last year there. The market was further hit Thursday when the Institute for Supply Management, a key index, reported that the U.S. manufacturing sector expanded much more slowly than expected last month. The ISM manufacturing index fell to 54.1 in December, its lowest level since November 2016—also apparently on concerns about the trade war and a slowing global economy.

Apple’s stock finished down 15.73 points at 142 on its worst day since January 2013.

The U.S. president, who is divided between his desire to inflict trade pain on Beijing and his worries about being identified with a “Trump slump” in the markets, tried to put the best face on things. “The United States Treasury has taken in MANY billions of dollars from the Tariffs we are charging China and other countries that have not treated us fairly,” he tweeted (though of course American taxpayers end up paying most of that). “In the meantime we are doing well in various Trade Negotiations currently going on. At some point this had to be done!”

But Kevin Hassett, Trump’s chairman of the Council of Economic Advisors, was much more downbeat. “It’s not going to be just Apple,” Hassett told CNN. “There are a heck of a lot of U.S. 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.”

And that could be a conundrum for the president. He might be able to talk down the Federal Reserve as he plays chicken with Beijing. Talking up the Fortune 500 is another matter.