February 18, 2020

Markets Overreact To Apple’s Revenue Warning

Market sentiment has tumbled once again due to a fresh revenue warning from Apple. The Californian based company announced that it may not be able to meet its quarterly revenue due to the iPhone supply shortage and lower demand in China caused by the outbreak of Coronavirus. Apple makes most of its products in China, and from a demand perspective, China was always an important area to impact its revenue.  But for now, the tech giant’s supply chain has been disrupted due to this virus and it will not be able to meet its quarterly revenue.

The fact is that Apple already warned the markets when they announced their earnings earlier this year, and given that the fresh warning is still within the same range, it isn’t really bad news.

The Focus Should Be Different

I think investors should be focusing more on the efforts of the People Bank of China to support the market. That is more significant than anything else. Yes, Apple’s supply chain disruption is going to bring some temporary pain for the firm but this pain would have been even worse if the PBOC remained reticent.

The fact that Beijing is willing to do whatever it takes to support the markets triumph anything else. In my opinion, investors are only overreacting to this news.

There is no doubt that quarterly earnings numbers are going to be feeble and this trend will be across the industry. Coronavirus, which started in China, has spread globally and it is bound to influence the revenue numbers of other companies. But the reality is that market participants have been warned about this. Any pullback could be an opportunity as long as we have the support of the central bank from China.

Commodities

A risk-off trade has shifted the momentum for money flow towards safe-haven, and gold sits on top of this ladder. The gold price hit a 2-week high ($1,586) today, but still shy of the critical level of $1,600, a target which I am still holing.   

As for oil, both Brent and Crude prices traded lower, down 0.6% and 0.4% respectively (at the time of writing this article). The IEA has warned last week that Coronarius will impact oil demand and it could fall by 435K barrels per day (bpd) y/y during the first quarter.