Trade deal removes major hurdle for rally in Apple and
tech
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[December 14, 2019] By
Noel Randewich
SAN FRANCISCO (Reuters) - U.S. President
Donald Trump's limited trade deal with China removes a major hurdle for
Apple <AAPL.O> and other technology stocks that have already surged this
year to record highs.
The so-called Phase One deal announced, but still not signed, on Friday
suspends the planned imposition of new 15% tariffs on Sunday that would
have hit $160 billion in Chinese consumer goods just weeks before
Christmas, including $115 billion worth of iPhones, laptops and other
electronics.
The deal would also see the United States reduce existing tariffs on
other goods. China has agreed to boost imports of U.S. energy,
pharmaceutical and agricultural products, although Chinese officials
offered no details on the amount of U.S. goods Beijing had agreed to
buy.
![](http://archives.lincolndailynews.com/2019/Dec/14/images/ads/current/Holiday_promo_sda_2019.png)
If it is signed, Trump's long-awaited deal will be a relief to Apple,
among the U.S. companies with the most to lose in the trade war between
the world's two largest economies, along with chipmakers who make the
components in its devices, which are mostly made in China.
"The Street has been laser focused on this additional 15% next round of
tariffs and we believe this ultimately signals a green light for tech
stocks heading into year end with the impending $160 billion tariff no
longer a near-term concern," Wedbush analyst Dan Ives wrote in a note on
Friday.
Ives estimated that the tariffs that would have hit iPhone imports on
Sunday would have clipped about 4%, or 50 cents, off of Apple's 2020
earnings per share.
Even amid trade uncertainty, Apple surged over 70% this year to all-time
highs on broad investor confidence in recent months that Washington and
Beijing would eventually strike a deal. Apple's stock has also benefited
from progress increasing its services revenue as it diversifies from
declining iPhone sales.
Confidence the trade war would be settled has also pushed the S&P 500
<.SPX> up 26% in 2019 and fueled a 44% rally in the information
technology sub-index <.SPLRCT>.
Still, Investors are divided over whether Trump's trade deal is fully
priced into the market, or whether shares of Apple, its suppliers, like
Qorvo <QRVO.O> and Skyworks Solutions <SWKS.O>, and other U.S.
technology and trade-sensitive stocks have room to rise.
The S&P 500 edged up 0.01% on Friday to close at its second record high
in two days, while Apple rose 1.36% to an all-time high. Chip stocks
including Qorvo and Advanced Micro Devices <AMD.O> sold off from recent
record highs.
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![](../images/121419pics/busine37.jpg)
Traders work on the floor at the New York Stock Exchange (NYSE) in
New York, U.S., December 9, 2019. REUTERS/Brendan McDermid
![](http://archives.lincolndailynews.com/2019/Nov/23/images/ads/current/eaton_lda_HFH_2019.png)
"I wouldn't be surprised to see some profit-taking," said Tim Ghriskey, Chief
Investment Strategist at Inverness Counsel in New York. "On the other hand, the
deal could really give corporate management better visibility into the economic
outlook, and help them start spending again."
Reflecting Wall Street's mostly upbeat view toward Apple, BofA Global Research
analyst Wamsi Mohan on Wednesday raised his price target on the company,
predicting the eventual rollout of 5G would drive three years of robust iPhone
sales.
The Philadelphia Semiconductor Index <.SOX> has surged 56% in 2019, as the
rollout of 5G wireless technology appeared likely to end a downturn in global
chip demand and on confidence the trade war would be resolved. The global chip
market is set to recover by 5.9% in 2020 after shrinking 12.8% this year,
according to a forecast by World Semiconductor Trade Statistics.
But gains in technology stocks have stretched their earnings multiples,
increasing the risk should their bottom lines not grow next year as much as
expected, or should Trump's trade deal sour. The S&P 500 information technology
sector is trading at over 20 times expected earnings, its highest multiple since
2005, according to Refinitiv.
Earnings for the tech sector are expected to grow by about 10% next year after
falling 1% in 2019, according to Refinitiv's I/B/E/S data. That is mostly in
line with broader expectations for the S&P 500, with analysts predicting around
10% profit growth next year, up from 1% in 2019.
![](http://archives.lincolndailynews.com/2019/Dec/14/images/ads/current/fricke_sda_WORSHIP_2019.png)
"Markets are clearly seeing through this year’s flat S&P earnings and expect
much better results in 2020," Nicholas Colas, co-founder of DataTrek, wrote in a
note.
(Graphic: U.S.-China trade timeline (with Apple share price) Image https://graphics.reuters.com/USA-STOCKS/0100B4RD2H9/china-trade-apple.png)
(Reporting by Noel Randewich; Editing by Alden Bentley and David Gregorio)
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