The rare warning of disappointing results from Apple reinforced investors’ fears that the world’s second-biggest economy is losing steam and that trade tensions between Washington and Beijing are making things worse.
The Dow Jones Industrial Average plunged as much as 677 points about an hour into trading, then began climbing back, but was still down more than 550 points at midafternoon. The broader S&P 500 index was down 2 per cent.
Apple stock plummeted 9.5 per cent, erasing $71 billion in value. Other big exporters, including technology and heavy-machinery companies, also took big losses. Some of the worst drops were at chipmakers that make components used in smartphones and other gadgets.
WATCH: How investors can protect themselves from market slump
“For a while now there’s been an adage in the markets that as long as Apple was doing fine, everyone else would be OK,” said Neil Wilson, chief markets analyst at Markets.com. “Therefore, Apple’s rare profit warning is a red flag for market watchers. The question is to what extent this is more Apple-specific.”
Investors were also unsettled by a report Thursday that showed signs of weakness in U.S. manufacturing.
The U.S.-China trade dispute threatens to snarl multinational companies’ supply lines and reduce demand for their products. Companies such as General Motors, Caterpillar and Daimler have all said recently that trade tensions, combined with slower growth in China, were damaging their businesses.
“When the largest and second-largest economies in the world get into a trade dispute, the rest of the world’s going to feel the effects. That’s what we’re seeing now,” said Jack Ablin, chief investment officer of Cresset Wealth Advisors.
WATCH: Trade clashes cost U.S. and China billions in 2018
In a letter to shareholders Wednesday, Apple CEO Tim Cook said iPhone demand is waning in China and would hurt revenue for the October-December quarter. Cook said Apple expects revenue of $84 billion for the quarter. That’s $7 billion less than analysts expected.
Apple’s warning couldn’t have come at a worse time for stocks given the wipeout in late 2018. Many global indexes posted their worst year in a decade amid concerns about the global economy and the prospect of further U.S. interest rate increases.
As of 2 p.m., the S&P 500 was down 50 points to 2,459. The Dow had slid 571 points, or 2.5 per cent, to 22,774. The Nasdaq, which has a high concentration of tech stocks, retreated 170 points, or 2.6 per cent, to 6,495.
U.S. government bond prices jumped, sending yields to their lowest level in almost a year, and gold and high-dividend stocks like utilities also rose as investors looked for safer places to put their money.
A weak report Thursday on U.S. manufacturing also weighed on the market. The Institute for Supply Management said its index of manufacturing fell to its lowest level in two years, and new orders have fallen sharply since November. Manufacturing is still growing, but at a slower pace than it has recently.
Apple stock has slumped 37.5 per cent since early October. The company also recently announced that it would stop disclosing how many iPhones it sold each quarter, a move many investors suspected was an attempt to hide bad news.
Apple stock took its biggest loss in six years Thursday and was down to $142.94 in afternoon trading. Microsoft shed 3.1 per cent to $97.95. Among chip makers, Intel fell 4.5 per cent to $44.98.
Among big industrial companies, Caterpillar gave up 3.2 per cent to $122.35, and Deere lost 2.1 per cent to $145.03. Boeing, which sells many of its planes to China, declined 4.1 per cent to $310.58.
Companies that make heavy machinery such as construction equipment are facing less demand as China’s economy, the largest in the world after the U.S., loses strength. They are also dealing with higher costs for metals as a result of tariffs.
Markets overseas also stumbled. Germany’s DAX dropped 1.5 per cent and the French CAC 40 fell 1.7 per cent, and Britain’s FTSE 100 gave up 0.6 per cent. In Asia, tech-related stocks suffered most. South Korea’s Kospi ended 0.8 per cent lower and Hong Kong’s Hang Seng gave up 0.3 per cent.
WATCH: China-U.S. temporary trade deal prompts surge in stock markets
Oil prices edged higher. U.S. crude rose 0.4 per cent to $46.71 a barrel in New York and Brent crude rose 1.1 per cent to $55.50 a barrel in London. Oil prices have nosedived almost 40 per cent since early October, and investors’ fears about falling demand in China and elsewhere were a key reason for the decline.
The dollar weakened. It fell to 107.84 yen from 109.21 yen. The euro rose to $1.403 from $1.344. The British pound fell to $1.2638 from $1.2690.
Gold climbed 0.8 per cent to $1,294.80 an ounce. Silver rose 0.9 per cent to $15.80 an ounce. Copper, which is used in construction and wiring, fell 2.1 per cent to $2.57 a pound.
WATCH: Apple reduces revenue forecast, blames China slowdown
Pan Pylas contributed to this story from London.