The recovery in U.S. stocks from October’s slump evaporated on Monday with the Dow Jones Industrial Average falling more than 600 points, while the Nasdaq Composite and S&P 500 declined 2.78% and 1.97% respectively. Apple (NASDAQ:AAPL) led the sharp selloff after Lumentum Holdings (NASDAQ:LITE), a key supplier to Apple’s iPhone, said one of its largest customers asked to reduce material shipments for previously placed orders. Although Lumentum, the optical equipment maker did not name the firm, investors jumped to the conclusion that Apple is the company which requested to reduce its shipments, supporting views that iPhone sales are beginning to experience a declining trend.
Such news should have only affected specific businesses and sectors, but instead, 414 out of the 504 companies on the S&P 500 declined on Monday, with only the defensive sectors managing to end the day in green. Markets in Asia followed Wall Street benchmarks lower today with Japan’s Topix and Nikkei leading the decliners tumbling more than 2%.
The iPhone is just a little device that costs a lot and contributes a significant chunk to U.S. GDP growth. However, when looking from a global perspective, mobile technology and services are estimated to have added $3.6 trillion or 4.5% to 2017 global GDP according to the IMF. China exported $128 billion worth of smartphones representing 5.7% of its total exports. Meanwhile in Korea, semiconductors alone accounted for 17.1% of total exports. In Ireland where Apple's European operations are headquartered, iPhone exports are said to have amounted to a quarter of the country's economic growth. That’s what makes the iPhone and other smartphone sales a vital indicator of global economic growth.
Adding to market anxieties are reports that the White House is circulating a draft on Auto Tariffs. This comes at a time when investors are already struggling with the U.S.-China trade tensions, Italy’s problems and Brexit talks. Given all these uncertainties, bears may continue to control the market’s direction for some time until positive news begin to flow.
In commodity markets, Brent fell below $70 today after testing $71.88 yesterday. The fall in prices comes despite OPEC agreeing on the need to cut Oil supply by around 1 million barrels per day from October’s level to prevent oversupplying the market. However, it seems -increasing supplies in the U.S., rising global inventories, and threats of a worldwide economic slowdown are having more influence on prices. Trump’s Tweet on Monday, "Hopefully, Saudi Arabia and OPEC will not be cutting Oil production. Oil prices should be much lower based on supply!" also helped drag prices lower.
The dollar declined slightly early Tuesday but remained close to its 16-months high reached yesterday. Unless the economy experiences significant deterioration in the following weeks and months, there’s no valid justification for the Fed to end or slow down it’s tightening cycle. For this reason, the dollar may continue marching higher, especially if spread differentials between the U.S. and E.U. widen further.
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