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Apple Earnings Report Contains an Ominous Threat to the Stock Market

Last Updated September 23, 2020 1:53 PM
W. E. Messamore
Last Updated September 23, 2020 1:53 PM
  • The first quarter Apple earnings report was mixed.
  • While revenue grew, iPhone sales plummeted dramatically.
  • That’s a worrying sign for consumer strength and the stock market.

Apple’s Thursday earnings report was a mixed bag of clues to the health of the broader stock market. On the one hand, Apple marked $58.3 billion in first-quarter revenue. Apple’s $2.55 earnings per share were also up 4%.

Apple CEO Tim Cook said :

Despite COVID-19’s unprecedented global impact, we’re proud to report that Apple grew for the quarter, driven by an all-time record in Services and a quarterly record for Wearables.

On the other hand, the earnings report revealed a plunge in iPhone sales last quarter. And the Cupertino company’s decision not to offer forward guidance for the quarter ending in June is a foreboding sign for the stock market.

It’s certainly a testament to the resilience of Apple to grow during the COVID-19 crisis. But we’ll have to wait and see how the second quarter affects its top and bottom lines.

Expect a Harrowing Second Quarter Earnings Report

Fed Chair Jerome Powell
Fed Chair Jerome Powell says the second quarter “will be worse than anything we have ever seen.” Apple is unlikely to be an exception. | Image: REUTERS/Yuri Gripas

The coronavirus pandemic didn’t crash the world economy and global asset prices until most of the way through February. And the first month of the new decade was a euphoric one for equities and consumers. Fed Chair Jerome Powell warned on Wednesday that :

The second quarter’s economic data will be worse than anything we have ever seen. I would say that it may well be the case that the economy will need further support from all of us if the recovery is to be a strong one.

The Q1 Apple earnings report confirms Powell’s expectations.

It reveals a partial picture of the collapse in consumer discretionary spending that drives the economy. That will crush corporate earnings in quarter two, leading to another painful adjustment in stock market valuations.

Apple Earnings Report: iPhone Sales Revenue Down 7%

Revenue from iPhone sales took a 6.7% dive from $31 billion in last year’s first quarter to $28.9 billion this year. Apple stock (NASDAQ:AAPL) whipsawed on the earnings report in after-hours trading. AAPL jumped slightly on the revenue growth, but then almost immediately gave up the day’s 2% gains.

Plunging iPhone sales reveals an enormous crack in consumer spending power and confidence. When the second-quarter numbers are out, that crack will grow into a perilous delta between consumer confidence levels in January and now.

Consumer Weakness Will Spill Over into the Stock Market

Back in January, consumer spending grew to record-breaking levels of confidence  in the U.S. economy. At the height of the record-long economic rally, consumer confidence was crucial for stock market valuations deep in overbought territory.

In a bright December forecast for the 2020 stock market, Goldman Sachs chief equities strategist David Kostin said 70% of the economy was the U.S. consumer:

The consumer confidence is extremely high, and 70% of the U.S. economy is represented by the consumer.

Now consumers face devastating job losses and crashing income levels. Worse, they were caught holding the most household debt in history when the economy crashed.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered investment advice from CCN.com. The author holds no investment position in AAPL.