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Robert Burgess

The Market’s Obstacles Are Both Macro and Micro

A double whammy leads market commentary. 

Equities have a lot with which to contend.

Equities have a lot with which to contend.

Photographer: Quinn Rooney/Getty Images

When Apple Inc. dropped a bomb after the official close of trading Wednesday that its revenue would fall short of estimates because of softness in China, many cynics snickered. Everyone knew China’s economy was slowing, so blaming the Asian nation for a setback was just a convenient excuse to mask a deteriorating business, like when retailers blame the weather for a slump in sales. Now, 24 hours later, Apple’s explanation looks a little more plausible in a distressing sign for equities, with the S&P 500 Index tumbling 2.48 percent Thursday. 

Apple’s announcement probably would have had only a short-term negative impact on equities, with traders coming around to the idea that Apple’s problems were of its own making if not for a disappointing manufacturing report Thursday morning from the Institute for Supply Management. Its December index of new orders — a key leading indicator of future activity — fell to a level that barely registered as growth. Furthermore, many survey respondents noted tariffs and the resulting higher prices were hurting their businesses. In other words, the headwinds challenging markets are both macro and micro in nature. That’s disconcerting because it takes a major leg out from under the bull case for stocks, which was that the economy may be slowing but at least earnings growth for 2019, forecast to be just more than 8 percent, would still be respectable. Even the ever-optimistic Trump administration is beginning to doubt the outlook for earnings. Kevin Hassett, the chairman of the White House Council of Economic Advisers, basically advised investors to go to the mattresses when he told CNN Thursday that “It’s not going to be just Apple” and that “there are a heck of a lot of U.S. companies that have sales in China that are going to be watching their earnings being downgraded next year until we get a deal with China.”