Futures rocked by Apple's China warning as earnings loom

By Sruthi Shankar

Jan 3 () - U.S. stock index futures tumbled on Thursday after Apple Inc stunned investors with a rare sales warning that inflamed fears that the Sino-U.S. trade war and a slowing China economy would eat into corporate profits more than expected.

Apple's shares sank 8.2 percent before the bell after the company slashed its holiday-quarter revenue forecast due to slowing iPhone sales in China, the first major warning with the U.S. earnings season around the corner.

The warning from Apple, whose stock is a member of all the three major Wall Street indexes, rocked financial markets, as investors sought safety in bonds and less risky assets.

At 7:49 a.m. ET, Dow e-minis were down 324 points, or 1.39 percent. S&P 500 e-minis were down 34.25 points, or 1.36 percent and Nasdaq 100 e-minis were down 134 points, or 2.1 percent.

Apple's slide is a gloomy omen for Wall Street bulls hoping for an early gift in 2019 following December's steep selloff, which President Donald Trump has called a "glitch".

Though the selloff has made stocks cheaper, with the S&P 500's valuation now at 14 times expected earnings from 18 times a year earlier, earnings estimates have also been sharply cut.

Analysts on average expect S&P 500 companies to increase their earnings per share by nearly 7 percent this year, down from a forecast of 10 percent at the start of October and far below their expectations of 24 percent EPS growth for 2018, according to Refinitiv's IBES.

Apple's warning on China has the potential to weigh heavily on a wide variety of companies, ranging from its suppliers to companies that rely on China for a major portion of their sales.

Chipmakers, which count both Apple and China as major customers, led the decliners in early premarket trading, with Intel Corp, Micron Technology Inc and Nvidia Corp falling between 2.3 percent and 4.6 percent.

Trade bellwethers Boeing Co and Caterpillar Inc dropped over 2 percent.

The United States and China are about one month into a 90-day tariff ceasefire to negotiate a deal. President Donald Trump said on Wednesday the talks were going "very well" and that the stock market would rise once various trade deals are settled.

Apple's warning follows data earlier this week that showed a deceleration in factory activity in China and the euro zone, indicating the ongoing trade dispute was taking a toll on global manufacturing.

The impact on U.S. activity will be clear later on Thursday. At 10 a.m. ET, the Institute of Supply Management is expected to report its index of national factory activity fell to a reading of 57.9 in December from 59.3 in November.

Before that, at 8:15 a.m. ET, the ADP National Employment Report is expected to show private payrolls rose by 178,000 jobs in December. The report comes ahead of the more comprehensive nonfarm payrolls report on Friday.

Among stocks, Celgene Corp jumped 31.9 percent after Bristol-Myers Squibb Co offered to buy the drugmaker for about $74 billion in a cash-and-stock deal. Bristol-Myers fell 13.6 percent.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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