Financial markets signaled darker prospects for US corporate profits and economic activity after Apple Inc. lowered its fourth quarter revenue forecast, citing lower iPhone sales in China.
S & P 500 fell 2.5% on Thursday, making the first two trading days of 2019 the worst start to US stocks since 2000. The bond market also reflects the change in the mood to slow down the economy this year.
"It is indicative of a general weakening in the growth of corporate income, which is progressing and it causes much anxiety among investors, which contributes to the problems of the stock market," said Mark Zandy, chief economist at Moody's Analytics.
Investors are also reassessing their opinion on interest rates. The contribution of the US two-year treasury notes fell below 2.4 percent, achieving parity with the effective rate of federal funds for the first time since 2008. The market move suggests that investors believe the US Federal Reserve will not be able to continue to tighten monetary policy as its forecast suggests, after raising the reference interest rates four times in 2018.
The yield on the 10-year US government bond fell to 2.56 percent, hitting the lowest level in a year.
"At the December meeting, the Fed stressed that its monetary policy was based on the plurality of indicators, not just on the movements of stock markets. Since then, however, economic indicators seem to have confirmed the forecast of slow growth markets, leaving the Bank has less reduced rates of increase, "says Jozelin Pakke, an economist at the National Bank Financial.
Apple, which last year became the first public company to reach $ 1 trillion in market value, fell 9.9 percent, deleting $ 74 billion, and the overall drop from October to 38.7 percent. The fall on Thursday, Apple's biggest one-time drop in the past five years, has dragged other stocks.
On Wednesday, after markets closed, a California-based technology company said revenues from the first quarter would be $ 84 billion, down from the previous forecast of $ 89 billion to $ 93 billion, adding to the list of US multinationals companies are lowering their expectations.
Delta Air Lines Inc. announced on Thursday that the unit's revenue for the fourth quarter (or average income per kilometer) will grow by 3 percent last year, down from a 3.5 percent forecast earlier. Delta shares fell 8.9 percent and gained shares with other airlines.
FedEx Corp. reduced the December profits forecast, pointing to the impact of trade tensions between China and the United States. Starbucks Corp. recently said that sales growth in China could slow to just one percent, lagging behind in sales growth elsewhere. Both Tiffany and Co. said Chinese consumers are cutting costs overseas.
These downward adjustments are hardly disastrous, but they support the idea that the growth of US corporate profits is slowing, while companies are preparing to publish financial results over the next few weeks. As the profit growth slows down, stock estimates are declining.
According to the latest Bloomberg estimates, analysts expect fourth-quarter S & P 500's fourth-quarter profits to increase by 13.4 percent, which is unlike the previous year, but this is due to growth expectations of 18 percent in October. Similarly, analysts expect profits of the first quarter to increase by only 4.3 percent, down from the 7.5 percent forecast in October.
David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates, noted that the tougher prospect of earnings suggests that stock estimates can be significantly reduced. "Even steady earnings can reduce this market to 1,800 on the S & P 500, or even lower," said Mr Rosenberg in the note, which means the index could fall another 26.5 percent of the current level of 2,448.
The latest economic news in the United States has not strengthened the prospect and suggested that economic challenges are not confined to China alone. The ISM production index fell to 54.1 in December, down from 59.3, which is the highest monthly decline in a decade.
"Production can only represent a small part of the overall economy, but with clear evidence that weaker global growth is beginning to take its tax and the financial conditions that continue to tighten, there is a risk that the slowdown in the factory sector could mark the beginning of a more serious decline in the wider economy, "said Andrew Hunter, a senior American economist at Capital Economics.
Canadian bond bonds also predict that the Bank of Canada will avoid emerging rates any time soon. The yield on the five-year government bond in Canada, affecting fixed mortgage rates, fell below 1.76 percent. It marked the lowest level of yield for more than a year, and a decrease of 2.5% in October, when economic prospects were significantly sunny.