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Dow closes 660 points lower on fears of economic slowdown

CNBC logo CNBC 1/3/2019 Fred Imbert, John Melloy and Eustance Huang


Stocks fell sharply Thursday after a dire quarterly warning from Apple and the release of weaker-than-expected manufacturing data. The iPhone maker cited a slowing Chinese economy for the shortfall, intensifying fears that the global economy may be slowing down.

The Dow dropped 660 points, or 2.8 percent, as Apple shares led the decline. The 30-stock index tumbled to its low of the day right before the close, trading down as much as 707 points.

The S&P 500 pulled back 2.5 percent as the tech sector fell 5 percent. The Nasdaq sank 3 percent, snapping a five-day winning streak, as Apple's stock dropped 10 percent. Thursday marked Apple's worst session since 2013.

Apple said it sees first-quarter revenue of $84 billion vs. a previous guidance of a range of $89 billion and $93 billion. Analysts expected revenue of $91.3 billion for the period, according to the consensus estimate from FactSet. Apple blamed most of the revenue shortfall for struggling business in China.

"This piles on to existing anxiety of a slowdown in global growth," said Jeff Kilburg, CEO of KKM Financial. "Apple can be used as a proxy to China's growth."

Chip stocks Advanced Micro Devices, Nvidia, Skyworks and Qorvo all dropped on the Apple warning. Skyworks lost more than 10 percent. Semiconductors fell broadly with the VanEck Vectors Semiconductor ETF (SMH) dropping 6 percent.

"While it's likely a combination of both macro and micro, the contribution of the former means that maneuvering through the upcoming earnings season will be like swimming in shark infested waters," said Peter Boockvar, chief investment officer at Bleakley Advisory Group, about what prompted Apple's guidance cut. "That said, I'd argue it's more of the latter."

Apple's warning also dragged down other companies that do big business in China. Caterpillar shares were down 3.9 percent. Boeing shares dropped 4 percent.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Apple CEO Tim Cook wrote in a letter to investors on the warning. "We believe the economic environment in China has been further impacted by rising trade tensions with the United States. As the climate of mounting uncertainty weighed on financial markets, the effects appeared to reach consumers as well, with traffic to our retail stores and our channel partners in China declining as the quarter progressed."

China and the U.S. are currently trying to strike a deal on trade after slapping tariffs on billions of dollars worth of each other's goods. President Donald Trump said on Wednesday that last month's losses — which market the worst December decline since 1931 — were a "glitch," adding equities will rebound once trade matters are squared up.

Thursday's decline in equities was accelerated by a weaker-than-expected reading on the U.S. manufacturing sector. ISM's manufacturing index fell to 54.1 in December, economists polled by Refinitiv expected 57.9.

"We turned the calendar but we didn't turn the trend in the markets," said Eric Wiegand, senior portfolio manager at U.S. Bank Private Wealth Management. "We have continued to witness a deceleration in global growth. As we started this year, the purchasing manufacturers' index data from around the world indicated perhaps a pace of softening that caught investors by surprise. That's reinforced by today's release of the ISM manufacturing numbers."

Shares of Delta Air Lines fell nearly 9 percent after the company issued slightly lower revenue guidance for the fourth quarter. Delta's downturn dragged American Airlines and United Continental, as they pulled back 7.5 percent and 5 percent, respectively.


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