Why Apple Stock Avoided a Beating From Trump’s Latest Tweets

AAPL stock - Why Apple Stock Avoided a Beating From Trump’s Latest Tweets

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On the last weekend before the expected launch of new iPhones and a new Apple Watch, Apple (NASDAQ:AAPL) and its suppliers should be riding high. Instead, Apple is on the defensive and its Asian suppliers are seeing their stock pummeled.

At the center of it all is the Trump administration’s planned tariff’s on Chinese imports, a move AAPL warns could raise the prices of its products. That’s bad enough, but the bombshell was a tweet from President Trump on Saturday telling Apple the solution to avoid cost increases is to move production of its products from China to the U.S.

Why AAPL Stock Avoided a Beating After Trump's Latest Tweets

That hasn’t had much of an effect on AAPL stock at this point, but the impact on the company’s Asian suppliers was immediate: They got hammered.

Trump Tweets, Apple Suppliers Feel the Pain

On Friday, it was reported that Apple had filed a letter with the Office of U.S. Trade Representative (USTR) several days earlier. The company warned that the proposed tariffs on $200 billion in Chinese imports would increase its costs, resulting in higher prices for products, including the Apple Watch, Apple Pencil, HomePod smart speaker, AirPods wireless earbuds and the Mac Mini. Apple asked the USTR to reconsider the tariffs, citing higher prices for U.S. consumers.

That warning — and the prospect of consumers having to shell out more for already premium-priced Apple gear — resulted in AAPL stock closing down 0.8% on Friday.

On Saturday, U.S. President Donald Trump sent the following tweet in reaction to Apple’s warning:

“Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive. Make your products in the United States instead of China. Start building new plants now. Exciting! #MAGA

Apple has looked at the possibility of U.S. iPhone assembly several times in recent years, but the economics have never added up.

The impact of President Trump’s tweet was immediate, at least on AAPL’s Asian suppliers and assembly partners. Reuters published a long list of victims, including AirPod manufacturer Luxshare Precision (down 10%) and iPhone camera lens maker Largan Precision (down 8%). Apple’s primary iPhone assembler, Foxconn was down 3.4%, while Pegatron slid nearly 4%.

Why Didn’t AAPL Stock Get Hit?

With its suppliers reeling, why didn’t the AAPL stock price get hit hard? It slid 0.8% on Friday and it has been down slightly in after-hours trading, but Apple wasn’t affected nearly as badly as its suppliers. 

That’s despite the fact that Apple products face a more expensive sticker price, or the alternative of AAPL eating the additional costs, resulting in lower margins. Plus, China is a big market for Apple. In its Q3 results, China generated $9.6 billion in revenue, making it Apple’s third-largest market. A trade war between the two countries, with escalating tariffs, would not be good news for Apple, or AAPL stock.

Two of the factors helping to shield the company include this week’s iPhone launch, and strong demand for its products.

This week is the biggest in Apple’s calendar, with the annual iPhone event taking place on Wednesday. That is expected to generate a big wave of new iPhone sales. And if Apple ends up being forced to raise prices on products? The high-priced iPhone X is just the latest proof the company’s customers are willing to fork over extra cash to get products with the Apple logo. In addition, if AAPL gets hit by tariffs, many of its competitors like Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google will too, levelling the playing field.

Then there’s the hope cooler heads will prevail and the trade war with China will peter out. That doesn’t seem likely given the current climate. But until tariffs really start to kick in and impact Apple’s costs, iPhone mania continues to outweigh the trade war when it comes to AAPL stock.

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2018/09/apple-aapl-stock-avoided-beating-after-trumps-latest-tweets/.

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