Stock futures tumble on Apple's China warning ahead of earnings season

[January 03, 2019]   (Reuters) - U.S. stock index futures fell sharply on Thursday after Apple Inc <AAPL.O> stunned investors with its first sales warning in more than a decade, deepening fears about a slowdown in China's economy and its impact on corporate profits.

Apple's shares tumbled 8.8 percent in premarket trading after the iPhone maker slashed its holiday-quarter revenue outlook due to slowing iPhone sales in China, sparking fresh concerns over the fallout from the Sino-U.S. trade war ahead of the U.S. earnings season.

"This provides solid evidence of how slowing economic growth and a trade war make the best death cocktail for sentiment," said Naeem Aslam, chief market analyst at Think Markets UK Ltd in London.

At 6:26 a.m. ET, Dow e-minis <1YMc1> were down 371 points, or 1.59 percent. S&P 500 e-minis <ESc1> were down 41.25 points, or 1.64 percent and Nasdaq 100 e-minis <NQc1> were down 172.75 points, or 2.71 percent.

The warning from Apple, whose stock is a member of all the three major indexes, is a gloomy omen for Wall Street bulls hoping for an early gift in 2019 following December's steep selloff.

Though the recent sell-off has lowered the S&P 500's valuation, to 14 times expected earnings from 18 times a year earlier, earnings estimates have also been sharply lowered.

Analysts on average expect S&P 500 companies to increase their earnings per share by nearly 7 percent this year, down from a forecast of 10 percent growth at the start of October and far below their expectations of 24 percent EPS growth for 2018, according to the most recent estimate from Refinitiv's IBES.

Apple's warning on China has the potential to weigh heavily on a wide variety of companies. Chipmakers, which count both Apple and China as major revenue generators, led the decliners in early premarket trading, while trade bellwethers Boeing Co <BA.N> and Caterpillar Inc <CAT.N> dropped over 2 percent.

A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., January 2, 2019. REUTERS/Shannon Stapleton

The United States and China are about one month into a 90-day tariff ceasefire, and President Donald Trump said on Wednesday that negotiations "are coming along very well".

Trump also called the stock market's drop at the end of 2018 a "glitch" and said the market would again go up once various trade deals are settled.

Apple's warning follows data earlier this week that showed a deceleration in factory activity in China and the euro zone, indicating the ongoing trade dispute was taking a toll on global manufacturing.

The impact on U.S. activity will be clear later on Thursday. The Institute of Supply Management is expected to report a fall in its index of national factory activity to a reading of 57.9 for December, from a reading of 59.3 in November.

Also on tap is the ADP National Employment Report, which is expected to show private payrolls rose by 178,000 jobs in December. The report comes ahead of the more comprehensive nonfarm payrolls report on Friday.

(Reporting by Sruthi Shankar in Bengaluru; Editing by Shounak Dasgupta)

[© 2019 Thomson Reuters. All rights reserved.]

Copyright 2019 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.