Apple is feeding some of Wall Street's biggest fears.
The Dow dropped 660 points, or 2.8%, on Thursday after Apple warned it will badly miss its quarterly sales forecast because of weakening growth and trade tensions in China.
Apple (AAPL), among the world's most widely held stocks, plummeted 10% in its darkest day in six years. The former king of the stock market fell to the fourth-biggest public company, behind Amazon (AMZN), Microsoft (MSFT) and Alphabet (GOOGL).
The news sent shudders through global markets. The Nasdaq plunged 3%, closing back in bear market territory. The S&P 500 shed 2.5%, led lower by tech and industrial stocks. The market ended near the lows of the day.
Even though the market rose slightly on Wednesday, this is still the S&P 500's worst two-day start to a trading year since 2000, according to Refinitiv data.
Beyond Apple, investors were also rattled by the biggest one-month decline in US factory activity since the Great Recession. The closely-watched ISM manufacturing index tumbled to a two-year low, providing further evidence of slowing growth and pain from the US-China trade war. ISM said manufacturing activity is still growing, but suffered a "sharp decline" last month.
"Awful, and worse to come," Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote to clients on Thursday. "Trade wars are not easy to win."
Apple's stark warning reinforced multiple investor concerns. First, it suggests that analysts may be too optimistic about corporate earnings in the challenging global environment. And Apple's trouble navigating China backs fears that the slowdown in the world's No. 2 economy is already hurting profits for multinational companies.
"Trade tensions between the US and China could take an increasing toll on companies in both nations," UBS strategists Christopher Swann and Kiran Ganesh wrote in a note to clients on Thursday.
Even Trump officials are warning of more China trouble ahead for Corporate America. Kevin Hassett, chairman of the White House's Council of Economic Advisers, told CNN's Poppy Harlow on Thursday that "a heck of a lot" of US companies with sales in China will follow Apple's footsteps by downgrading their outlooks.
"It's not going to be just Apple," Hassett said, adding that sales will recover if trade negotiations with China are successful.
Trade war fallout
The Apple news is "feeding fears of slower global growth and further risk aversion," Kit Juckes, strategist at Societe Generale, wrote in a note to clients on Thursday. Juckes said it also supports "soft" manufacturing numbers out of China in recent days showing activity has contracted.
Investors continue to flock to government bonds for safety, sending yields plunging. The 10-year Treasury yield tumbled to an 11-month low of 2.56% on Thursday, a sharp decline from 3.23% in November.
And Apple CEO Tim Cook offered some of the starkest evidence yet of the negative consequences of the US-China trade war. Cook said "rising trade tensions" with the United States are impacting China's economy. The trade uncertainty "appeared to reach consumers," with customer traffic in China declining, he said.
But some analysts cautioned that Apple's troubles may be more company specific than global in nature. Apple's iPhone price hikes have hurt demand, especially as customers upgrade their smartphones less frequently.
"The global market for +$700 phones has clearly topped out," Nicholas Colas, co-founder of DataTrek Research, wrote to clients on Thursday.
In any case, Apple suppliers predictably plunged on the developments. Cirrus Logic (CRUS), Skyworks Solutions (SWKS) and Broadcom (AVVGO) tumbled 8% apiece. Best Buy (BBY), another company that relies on Apple products, declined 2%.
Jobs report is next
Major US airline stocks descended after Delta Air Lines (DAL) warned that revenue for the quarter was a bit weaker than its earlier guidance due to softness in fares, particularly in December. Delta plunged 9%, while United Continental (UAL) fell 5% and American Airlines (AAL) lost 7%.
Investors failed to find much solace in better news elsewhere. ADP said on Thursday that the United States added 271,000 private-sector jobs in December, easily topping estimates. And Bristol-Myers Squibb (BMY) showed strong confidence by shelling out $74 billion in a blockbuster deal to acquire drug maker Celgene (CELG).
Thursday's selloff shows how many of the same fears that made 2018 the US stock market's worst in a decade are still roiling markets. Stocks started 2019 with a tumble at Wednesday's opening bell before reversing course and closing solidly higher.
Attention will now turn to Friday's US jobs numbers. A weak December report could reinforce jitters that the US economy is slowing. On the other hand, stronger-than-expected payroll growth could remind investors that a slowdown is not the same thing as a recession.