Apple’s Sales Warning, Global Slowdown Drive Markets Lower

Stock markets dropped on Thursday after Apple reduced its Q1 sales forecast and a key U.S. manufacturing index dropped precipitously—both symptoms of a global economic slowdown. Uncertainty in Washington, due to the continued partial government shutdown and the change in control of the House of Representatives, only added to the market turmoil.

The S&P 500® Index closed down 2.5% for the day, bringing the index down 16.5% from its recent high on September 20, 2018. The Dow Jones Industrial Average (which is more heavily weighted to Apple) ended down 2.8% for the day and is now down 15.4% from its recent peak on October 3, 2018. The Nasdaq and Russell 2000® indexes are now in bear markets, down 20.3% and 23.4% respectively from their August highs.

Apple’s share price tumbled after the company warned that it expected Q1 revenues to be approximately $84.0 billion—well below the FactSet estimate of $91.3 billion. Apple cited factors such as the timing of its iPhone launches, the strong U.S. dollar, supply constraints and weakness in some emerging markets—most notably China, where smartphone sales have slowed considerably. “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad,” wrote CEO Tim Cook in a letter to investors.

“China’s slowdown isn’t exactly new news,” notes Jeff Kleintop, Schwab’s Chief Global Investment Strategist. After 10 months of economic deceleration, China has put renewed efforts into resolving its trade dispute with the U.S. ahead of a meeting next week. It may propose measures such as buying U.S. soybeans, approving U.S. rice imports, lowering tariffs on U.S. autos, downplaying the Made in China 2025 program, and introducing new penalties and laws to restrict forced technology transfer.

Meanwhile, the Institute for Supply Management (ISM) Manufacturing Index hit the lowest level since November 2016 and posted the largest point decline since 2008, falling from 59.3 the prior month to 54 in December. New orders were especially weak, plunging from 62.1 to 51.1. On a slightly more positive note, ISM said respondent comments reflected continued expanding business strength, albeit at much lower levels.  

Last, a new Congress was gaveled in today, with Democrats assuming control of the House of Representatives and the partial government shutdown entering its third week. Mike Townsend, Schwab’s Vice President, Legislative and Regulatory Affairs, expects House Democrats to immediately pass legislation to end the partial shutdown. “Whether it goes any further is in question,” he says. “The president has insisted that Congress fund a wall along the southern border. Democrats are firmly opposed. That leaves little room for a resolution.”

While the two major U.S. stock market averages—the S&P 500 Index and the Dow Jones Industrial Average—remain for now out of official bear market territory, “our cautious outlook persists, as we see increasing risk of recession heading into 2019 and continued spikes in volatility,” observes Liz Ann Sonders, Schwab’s Chief Investment Strategist. “Slowing economic growth, trade uncertainty and a flattening yield curve are all reasons to stay vigilant.”

Considerations for long-term investors

It’s nearly impossible to time the market, and it’s generally healthier for your portfolio if you resist the urge to sell based solely on recent market movements. However, here are some things you might consider doing now:

  • Plan, plan, plan. Many people put off making a plan—or revisiting the one they have—until times like this. But now is better than never. Reacquaint yourself with your investment goals and objectives. If you’re not clear about your goals, this would be a good opportunity to craft a plan.
  • Match your portfolio to the time frame of your goals. Make sure your portfolio is appropriate given your goals and objectives. Don’t focus only on investments designed to do well over the long term (for example, stocks) if you have shorter-term needs.
  • Revisit your risk tolerance. Volatility and especially declining markets are often a wake-up call for investors who haven’t been engaged in their portfolios. If you’re not comfortable with your risk level, it may be prudent to dial back the overall risk in your portfolio, while taking into account both short-term spending needs and long-term growth goals.
  • Consider your investing life stage: If you’re near or already in retirement, you may want to review your portfolio and income requirements. If necessary, you may want to adjust your portfolio to help buffer the effects of a market downturn on a portfolio from which you’re taking withdrawals for income (or expect to start taking withdrawals soon).

Next Steps

    • Talk to us. Schwab is happy to discuss your portfolio whenever and wherever it’s convenient for you.  Call us at 800-355-2162visit a branch or find a consultant.
    • Focus on the long-term. If you’ve built a solid financial plan and a well-diversified portfolio, it’s best to ignore the noise and focus on your long-term goals. Market volatility is unnerving, but it’s a normal—and normally short-lived—part of investing.
    •  If you need a plan, consider Schwab Intelligent Advisory™. You’ll have access to aCertified Financial PlannerTM professional who will collaborate with you to develop a financial plan tailored to your goals.
    • Learn more. Get additional guidance from Schwab’s experts on strategies for weathering market volatility.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

The policy analysis provided by Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

The S&P 500® Index is a market-capitalization-weighted index that consists of 500 widely traded stocks chosen for market size, liquidity and industry group representation.

The Dow Jones Industrial Average™, also referred to as The Dow®, is a price-weighted measure of 30 U.S. blue-chip companies. The Dow® covers all industries with the exception of transportation and utilities, which are covered by the Dow Jones Transportation Average™ and Dow Jones Utility Average™.

The Nasdaq Composite Index is the market capitalization-weighted index of over 3,300 common equities listed on the Nasdaq stock exchange. 

The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index.

The Institute for Supply Management (ISM) Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries.

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

Investing involves risk, including loss of principal.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Please read the Schwab Intelligent Advisory™ disclosure brochures for important information, pricing, and disclosures relating to Schwab Intelligent Advisory.