U.S. equities modestly moved lower on Thursday after reports of a 20% to 30% year-over-year drop in iPhone production later this year — when things should be ramping up for the iPhone 7 launch. The report pummeled Apple Inc. (NASDAQ:AAPL) to a 2.4% loss.
Adding insult to injury, during trading AAPL temporarily lost its status as the market’s single largest stock to Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL).
A bad day all around for CEO Tim Cook and his cohorts in Cupertino.
In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 lost a hair, the Nasdaq Composite dropped 0.5% and the Russell 2000 closed out the day with a 0.6% loss. The dollar mostly strengthened, Treasury bonds weakened, gold lost 0.5% and crude oil gained 0.6% to close at $46.50, thanks to the possibility of OPEC working toward a production freeze agreement after failing to do so at a recent meeting in Doha.
There was more bad news on the retail front with Kohl’s Corporation (NYSE:KSS) losing 9.2% after reporting a first-quarter earnings miss on weaker revenues and a 3.9% drop in comp-store sales (vs. 0.2% growth expected). After the close, Nordstrom, Inc. (NYSE:JWN) fell more than 17% after reporting a top- and bottom-line Q1 miss on a 1.7% drop in comp-store sales. Forward guidance was cut as well.
On the economic front, focus was on a rise in initial weekly jobless claims — a recent area of strength in the economy — to levels not seen since February 2015. This comes in the context of a tepid April jobs report, but a surge in job openings. Chalk it up to data volatility.
Not one, not two, not three, but four different Federal Reserve officials spoke on monetary policy today. Hawkish comments from the normally dovish Boston Fed President Rosengren attracted the most attention, as he believes the market is too pessimistic on the strength of the U.S. economy and the chances of a more aggressive pace of rate hikes this year.
Kansas City Fed President George — a dissenter at the last two Fed meetings — said interest rates are too low given current economic conditions.
Cleveland Fed President Mester said recent inflation data is encouraging.
And after the close, Federal Reserve Board Chair Janet Yellen sang her dovish tune saying the Fed wouldn’t rule out using negative interest rates should the economy need it. She did, however, warn that policymakers would need to consider the unintended consequences of this (such as cash hoarding).
Apple stock fell under the $90 threshold at its lows to return to levels not seen since June 2014 before rebounding into the close. Shares are down more than 31% from its high set early last year and have lost nearly 20% since mid-April.
Edge Pro subscribers closed their position in the May $107 AAPL puts for a gain of 263% that were originally recommended on April 18.
The Nikkei Asian Review warned that weak demand for the upcoming iPhone 7 — which reportedly will be just another modest refresh of the iPhone 6 form factor — is set to hit component suppliers hard later this year. Coming on the heels of a big earnings miss on the first ever drop in iPhone sales, this is fueling concerns about weak demand as the smartphone market gets saturated and Apple’s pace of innovation slows.
Analysts at Oppenheimer warned last month that Apple’s weak performance is likely to continue until the late-2017 launch of a new iPhone form factor. They lowered their fiscal 2016 and 2017 earnings per share estimates to $8.24 and $9.18 from $9.18 and $10.44 previously.
Along with weak retail earnings, the rising fears over the looming presidential election, and the risk of a June Federal Reserve interest rate hike, the recent fall from grace of Big Tech heavyweights like Apple is threatening to push the broad market down out of a three-month topping pattern capping the epic post-February rebound.
Amid narrowing breadth and extended measures of sentiment, the Dow Jones has spent the last two weeks testing its 50-day moving average near 17,600 as the 18,000 level, first crossed in 2014, once again pushed the bulls back.
Watch for a breakdown and a drop to the 200-day average near 17,100, as weakness in Apple encourages broad based profit-taking.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
