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Is Apple the Canary in the Economy’s Coalmine?

Last Updated September 23, 2020 2:01 PM
Andrew Packer
Last Updated September 23, 2020 2:01 PM
  • In February, Apple warned about supply chain disruptions.
  • The uncertainty started a broader market selloff.
  • Last week, Apple announced they were closing some reopened stores in hotspot areas.

Are you trying to understand the disconnect between the economy and the stock market? Look no further than Apple (NASDAQ:AAPL).

The consumer tech giant has proven remarkably prescient this year–and judging from what it’s doing now, that’s concerning.

Apple has been Ahead of 2020’s Curveballs

First, let’s recap. Back in February, Apple was one of the first companies to warn that they would face some challenges from the pandemic . They specifically cited problems from global supply chains out of China being shut down.

Other companies joined the fray. The world started to fret over supply chains being shut down. Stocks saw their first bear market in years.

S&P 500 Six Month Chart
Apple’s warning on supply chain disruptions marked the peak in the S&P 500 Index, before a sharp bear market. | Source: Yahoo Finance 

Those fears were aided by the genuine lack of essential goods like toilet paper, not to mention empty grocery store shelves.

Apple provided further leadership by voluntarily shutting down its stores. That’s a move other retailers made as well, with gradual reopenings in the months ahead.

Along the way, the supply chain fears started to ease. Apple shares, like the rest of the stock market, started to head back up on the positive news . Things were looking up–and markets are forward-looking.

Now, Apple has given the market more reasons to fret. It’s been a week since Apple announced it would start to re-close some stores .

Apple’s rationale? These stores are in pandemic hotspot areas. And as Apple has gone, so too have local governments, with several governors halting or even reversing plans to reopen their economies.

Markets have been volatile since this announcement. They haven’t been moving lower, but haven’t been surging higher either.

Behavior Suggests Economic Recovery Will Be Lower for Longer

Apple’s moves tell us that the company follows real-time pandemic data, as do state governors. But the company is willing to make the harder choices first.

Of course, shutting down physical retail stores when you still have online options is a better choice compared to shutting down a state economy. But so far, Apple has been ahead of the curve this year.

Their move to re-close stores is a warning that we could be in for more trouble.

The options vary. We could very well see supply chains get interrupted again. Retail stores may only open under onerous conditions. Plans for places to reopen, from theme parks  to cruise ships , may keep getting pushed out.

Keep Your Eye on Apple

As Apple goes, the economy goes. If consumers aren’t willing to shell out money at the iTunes store, much less pay up for the latest version of the iPhone, that will also prove telling. But there are still plenty of reasons for optimism, too.

So far, Apple has managed to report reasonably good earnings —after global uncertainty weighed on the views of analysts. But if Apple, like the other tech giants dominating the stock market, gets into trouble, we may be in for another downturn.

More so than their share price, investors should watch Apple’s actions for clues on how the economy and the markets are likely to trend.

Business confidence
Business confidence fell off a cliff and remains well below its pre-pandemic highs, suggesting a long struggle ahead. | Source: Trading Economics. 

Right now, Apple is pointing at its highest levels of caution in months, in line with low business confidence. We may see another economic and stock market downturn as a result.

Disclaimer: This article represents the author’s opinion and should not be considered investment or trading advice from CCN.com. The author holds no investment position in the above-mentioned companies.