Apple was the canary in the Chinese coal mine

Apple suffered the effects of the China shock before the rest of the market

From Paul Vigna's "Apple Breaks Out of the ‘FAANG’ Stock Slump" ($) in Saturday's Wall Street Journal:

Shares of Apple rose 2.7% to $236.21 Friday, setting an all-time closing high. After a brutal selloff last fall, the stock has surged about 64% from its 2019 low of $142 set on Jan. 3.

For most of last year, all the FAANGs were rising. Facebook, Amazon, Netflix and Alphabet all set records in the second half of 2018. Most have fallen since then, though.

Facebook is down about 15% since hitting a high of $217 in July. Amazon is down about 15% from its September 2018 high of $2,039. Netflix is down 32% since hitting a record $419 in July 2018. Alphabet hit a record high in July 2018, slid into 2019, set another new high in April—and is down 6% since then.

The first four companies are mainly software companies. Apple has software, too, but is really more of a hardware company. What makes that hardware even more valuable is if Apple can put compelling software on it, and that’s where Apple may take a big bite out of some of its FAANG siblings.

My take: To get the full breakout Vigna describes, you have to make a fever chart that starts on Jan. 3, (year-to-date doesn't do it). That's because Apple hit bottom the day it warned that it was revising its Q2 guidance.

Apple FAANG breakout

Click to enlarge.

Apple was the first to feel a shock that was about to hit the whole market. Here's how friend-of-the-blog Jerry Doyle put it yesterday, objecting to Toni Sacconaghi's remarks on CNBC Friday:

Yes, there was a pullback in Apple stock, a big one from about $232 to $142, around $90. The pull-back was more pronounced in Apple stock ahead of all other companies and ahead of the market declines that came almost immediately after word of slowing iPhone sales in China.

Apple was a “precursor” (the canary in the coal mine) of a China economic slow down, a big China economic slow down. The market as a whole was going through much uncertainty (and not just with China) and companies’ share prices across the board were being affected negatively days and weeks after Apple reported the China economic malaise. The Nasdaq plummeted to around 6200 from 8109. Today it is at 8057. The Dow collapsed to around 21800 from 26650 and today it is at 26816. The S&P 500 plunged to 2350 from 2924. Today it is at 2970.

In summary, Apple was the precursor of what was to follow as I described above. Toni Sacconaghi mentioned nothing about what was happening to the markets as a whole.

See also: With Apple at $236, Bernstein sticks with $205 (video)

UPDATE: Here's the chart Joe Bland references in a comment below.

Click to enlarge.

Bland writes:

Seems pretty conclusive to me that Apple’s pull-back was NOT “more pronounced…ahead of all other companies…” as Jerry Doyle asserts. Rather, the order of pullback was NFLX, FB, GOOGL, AMZN, AAPL, MSFT, with MSFT barely impacted relatively speaking.

6 Comments

  1. Kirk DeBernardi said:
    When considering Apple’s considerable business in China as compared to the others on the chart, I think Jerry is simply sharpening the point that, from the indications at the time, Apple had the most to lose and all eyes were on Apple’s reaction as a result. This then proved ultimately causal to the caustic adjusted forecast, hence a definite canary in a CHINA coal mine, not a NASDAQ coal mine.

    Please correct me if I’m wrong, Jerry.

    0
    October 12, 2019
    • Jerry W Doyle said:
      @Kirk DeBernardi: Good clear-sightedness in your understanding of what was happening at that period.

      The issue at the time was staring us all in the face. I disagree respectfully with Joe. It is “simplistic” thinking to understand what transpired. Toni Sacconaghi had to be cognizant of such or chose to ignore what many were suspecting.

      The Chinese economy was spiraling downward, but few had evidence as to the depth of the spiral.

      Apple is one of the big consumer players in China, so many eyes were focused on them. Folk were beginning to suspect the worse. It just took Apple to confirm the economic malaise of the Chinese economy.

      Apple was the first key (or noteworthy) company to feel the suboptimal economic Chinese climate. So yes, definitely, Apple was the the precursor (or the canary in the coal mine) that provided the “heads-up” for foreign companies operating in China to revisit their guidance.

      0
      October 13, 2019

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