Apple’s shares plummeted by 8% overnight after a reduction in its financial forecasts sparked concerns of a potential global recession.
The plummet in the share price, which wiped $60 billion from Apple’s market value, was driven predominately by a slowdown in the Chinese economy. A slowdown caused by the simmering trade war between the U.S. and China, with Chinese factory activity contracting for the first time in 19 months at the end of 2019, according to The Guardian.
It was this slump that forced Tim Cook, Apple’s CEO to announce that their revenues for this quarter would be significantly lower than previously forecasted. A move that sparked a reduction in share price.
Apple’s supply chain also took a significant hit too. Asian Suppliers including Hon Hai Precision Industry Company and Taiwan Semiconductor Manufacturing Company saw their shares decline. European suppliers took a hit too, including IQE, a Cardiff- based manufacturer, which saw its shares fall by 4%.
Interestingly, Samsung, Apple’s chief rival and the world’s top smartphone maker by market share, did not experience much of a stock stumble. However, that is because the company has little penetration in the Chinese mobile market, accounting for only 1% of all Chinese mobile phones according to CNBC.
Many experts on Wall Street, believe that this reduction in Apple’s shares coupled with Facebook’s “one-day collapse” in 2018 could signal a changing of the relationship with investors and the so-called “FAANG” (Facebook, Amazon, Apple, Netflix and Google).
This is all a far cry from last August, when the company became briefly the first U.S. company to reach $1 trillion in market capitalisation. Its stumble today, saw it drop from the second-most valued company by market capitalisation to third, overtaken by Amazon. Amazon saw its shares spike over 30% in 2018, to reach $754.9 billion, making it the second-largest company. Meanwhile, Microsoft continues to sit at No.1 with $779.3 billion.
The fall in Apple’s share price is not just limited to Silicon Valley giants but a part of wider malaise in the stock market, which is worrying investors. For both the FTSE 100 and S&P 500 suffered their largest annual declines since 2008. Furthermore, this worrying trend continued with the “flashing red” or turning negative of the short-term borrowing costs or “near-term forward spread” in the U.S, a key indicator of a potential recession.
So, despite the promise of new resolutions and New Year’s optimism, it seems the global economy is partying like it’s 2008. With worries of rising interest rates, falling oil prices, trade war and potential further geo-political tensions, for some it seems that 2019’s resolution will be not to fall into recession.
Why is this so important? After all, Apple would hardly be the first company to issue a profit warning, company stocks rise and fall, the sun still rises and we all continue to go about our business.
As the contagion of Apple’s surprise profit warning, which cited the “magnitude” of the economic slowdown in China, spreads to European markets, it just goes to show the interconnected nature of risk as we enter 2019. Organisations’ increasing exposure to Apple-type scenarios enables a single negative event to exponentially spread disruption, paralysis and wreak severe economic damage both within and between organisations.
But can anything be done to mitigate the exposures wrought by these types of scenarios? Risk-based scenario modelling for the impact of events on economies and markets is an option that could be considered by analysts. Risk modelling firms such as Russell Group are developing products and services that join the dots in geo-political risks such as protectionism, the new populism, digital change, economic, credit and supply chain risk.
In today’s inter-connected world, we can safely say that when a large firm such as Apple catches a cold, we’ll all end up getting it at some point. So better to act now to prevent the contagion from spreading.