Apple’s Coronavirus Sales Warning Hits Wall Street, Drives Safe Haven Plays

Wall Street indexes drop, while safe haven assets rally
February 18, 2020 Updated: February 18, 2020

A downgrade in Apple’s earnings forecast rattled markets Tuesday, sending the iPhone maker’s stock tumbling over 2.5 percent while lifting safe haven assets, as investors digested news that the coronavirus outbreak would have a bigger-than-expected impact on the tech giant’s bottom line.

On Monday, the iPhone maker warned of lower sales in the current quarter, indicating that the virus, which has been given the official designation COVID-19, was having a negative impact on its supply chain.

“Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated,” the company said in a statement, referring to manufacturing facilities in China operating below capacity on virus fears and lockdowns.

The drop in Apple’s stock is set to wipe nearly $30 billion off its market capitalization, just as it was inching closer to $1.5 trillion in value. At around 11:50 EST, the stock was trading down at $316.27.

“Apple was just the start. Expect more warnings like these,” said Kevin Muir, veteran trader and author of MacroTourist, in an emailed statement to The Epoch Times.

“The market will continue to have difficulties digesting these sorts of pre-announcements,” Muir said, adding that “the surprises will be on the downside, not the other way round.”

Epoch Times Photo
Shares of Apple Inc. (AAPL) dropped in morning trading on Feb. 18, 2020. (Courtesy of TradingView)

In what could be seen as a bid to calm markets, White House advisor Peter Navarro said on Tuesday that Apple’s dip should not be taken as an example of how the coronavirus will affect U.S. companies, adding that the iPhone maker has greater exposure to China than most companies.

“It seems as if every time there’s new coronavirus news, the market sells off and then quickly rebounds. Sometimes in a day or two, sometimes even the same day,” said Marc Lichtenfeld, Chief Income Strategist at The Oxford Club, in an emailed statement to The Epoch Times. “Short-term corporate earnings may be negatively affected, but there likely won’t be much long-term impact,” he predicted.

“Investors that own solid companies should stay the course and not worry about jumping into safe havens because of the virus,” he added.

Muir contended that virus-related supply chain disruption would inevitably lead to some spillover.

“Although Navarro was quick to point out that Apple is an especially China-centric company with heavy dependence on the Chinese supply chain, to think this problem will not leak into the rest of the globally important American companies is a pipe dream,” Muir said.

Still, several Wall Street brokerages dubbed Apple’s update forecast as a “near-term headwind,” saying the company is performing strongly outside China and the launch of 5G phones later this year would further boost sales.

“We believe any material weakness in Apple shares as a result of the March 20 quarter revenue shortfall will prove to be a buying opportunity,” analysts at Piper Sandler wrote in a client note.

“The iPhone supply constraints in the current quarter could result in pent-up demand for future quarters,” they said, suggesting Apple’s supply chain woes have a likely future upside.

But for now, major Wall Street indices like the S&P500, the Dow Jones and Nasdaq were all down on Tuesday, while safe haven assets rallied.

The spot gold price in both U.S. dollars (XAUUSD) and Euros (XAUEUR) rose by 1.52 and 1.65 percent respectively.

Bitcoin, considered by some investors to be a type of safe haven, rallied by over 3 percent Tuesday, while the DXY dollar index was up by 0.24 percent.

Epoch Times Photo
Gold spot price in U.S. dollars (XAUUSD) on Feb. 18, 2020. (Courtesy of TradingView)

Explaining safe haven assets, David McAlvany, CEO of the McAlvany Financial Companies and founder of Vaulted, a gold investing app, said that the precious yellow metal “acts like insurance.”

“Gold provides growth and positive performance when other assets are selling off,” McAlvany told The Epoch Times. “The benefit of owning gold alongside other more traditional assets, is you increase total returns and decrease volatility by having an asset which behaves in a countercyclical way.”

Another way investors sought to benefit from Apple’s earnings downgrade was by buying what they believe are temporary dips amidst a strong long-term upward trend.

“In the wake of the Apple warning, the dip buyers were out in full force with the Nasdaq 100 future rallying almost 100 points off the overnight low,” Muir said of how the Nasdaq future derivatives index was printing on Feb. 18.

A chart showing the Nasdaq 100 futures contracts shows the buying action Muir described, with price gains being followed by profit-taking around the 9,620 mark.

Apple is one of the companies included in the Nasdaq 100 and so its performance is regarded as having a significant impact on the broader index.

Epoch Times Photo
Nasdaq 100 futures chart (NAS100USD) in trading on Feb. 18, 2020. (Courtesy of TradingView)

The outbreak is expected to pile pressure on China’s economy, with multiple companies struggling to restart production after an extended Chinese New Year holiday.

American companies have begun lowering their revenue and earnings estimates to reflect the potential effects on their businesses from China’s deadly coronavirus outbreak.

Fiat Chrysler, Hyundai, and General Motors have all warned their auto production lines were or could be hit by Chinese factories that are slow to restart due to the virus.

Nearly 40 percent of S&P 500 companies that released fourth-quarter earnings ending Dec. 31 warned about COVID-19, highlighting concerns in financial markets about the impact of the epidemic.

As of Feb. 13, the number of S&P 500 companies that conducted a fourth-quarter earnings conference call was 364, according to the data provider Factset.

Of those, 138 mentioned the word “coronavirus” during the call.

“I don’t know where coronavirus goes from here, but the uncertainty factor changes the perception of the marketplace of where you should be putting your money,” McAlvany said, “and you can already see the footprints of dollars moving to safe havens.”

Emel Akan and Reuters contributed to this report.

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