Apple (AAPL) stock was highly volatile in August due to the escalation of the US-China trade war. Overall, its stock fell 2.0% in August. In contrast, it rose 7.5% in July. The trade war also pulled down the S&P 500, the Dow Jones, and the Nasdaq Composite by 1.8%, 1.7%, and 2.6%, respectively, in August.
The US-China trade war also took a toll on chip maker stocks NVIDIA (NVDA) and Intel (INTC). These stocks fell 0.7% and 6.2%, respectively, in August. China is a crucial source of revenue for US chip makers. China (including Hong Kong) accounted for about 24% of NVIDIA’s revenue in fiscal 2019 and about 27% of Intel’s revenue in 2018.
Apple stock was down 1.9% as of 1:22 PM today, as the 15% tariffs on $110 billion worth of Chinese imports came into effect on September 1. These imports include footwear, apparel, and certain electronics such as the Apple Watch. NVIDIA and Intel were down 1.9% and 1.4%, respectively. The first round of China’s retaliatory tariffs on $75 billion worth of US goods came into effect on September 1.
Impact of the trade war on Apple stock
Apple started August on a negative note. Its stock declined 2.2% on August 1 as President Donald Trump announced a 10% tariff on $300 billion worth of Chinese imports. The stock fell another 5.2% on August 5 as China retaliated by devaluing its currency.
Apple stock surged 4.2% on August 13 as the US Trade Representative delayed the 10% tariff on certain items, including cell phones and laptops, to December 15 from September 1. However, the tariffs weren’t delayed on certain items, including the Apple Watch and the HomePod.
AAPL gained 2.4% on August 16 as Trump tweeted positively about Apple’s investments in the US. Further, Apple gained 1.9% on August 19 after Trump acknowledged that the tariffs were likely to put it at a disadvantage to its rival Samsung. Trump’s statements followed a dinner with Apple CEO Tim Cook.
However, the optimism was short-lived, and Apple stock fell 4.6% on August 23 as China announced tariffs of between 5% and 10% on US imports worth $75 billion that would be effective in two tranches. Matters took a turn for the worse when Trump announced an increase in tariffs from 10% to 15% on about $300 billion worth of imports. He also threatened to increase tariffs from 25% to 30% on $250 billion worth of goods effective October 1. Apple stock recovered 1.9% on August 26 after Trump indicated that China wanted to negotiate.
Why tariffs would hurt Apple
Tariffs are expected to have a severe impact on Apple’s business, as the company manufactures the majority of its products in China. Its margins will likely contract if it absorbs higher tariff costs. The company can pass these higher costs on to its customers through increased product prices, but doing so might affect its sales. China accounted for about 17% of Apple’s revenue in the first nine months of its fiscal 2019.
Apple has premium brand positioning. It’s facing fierce competition from lower-priced players. The iPhone is already struggling in markets such as China, where local players Huawei and Xiaomi are gaining market share. Apple’s iPhone revenue fell in the double-digits in each of the first three quarters of fiscal 2019.
Other key highlights in August
On August 20, the company announced that its new credit card, the Apple Card, was now available to all US consumers. The company collaborated with Goldman Sachs to issue the card. In early August, Apple launched its credit card for select customers. On August 21, its stock rose 1.1%.
On August 28, Apple stated that it had suspended the human grading of its Siri voice assistant. It made this decision amid rising privacy concerns among Siri’s users following a report by The Guardian on July 26. The report revealed that contractors often heard private information during the quality evaluation process for Siri (called “grading”).
YTD movement of AAPL
As of the end of August, Apple stock was up 32.3% YTD (year-to-date). It outperformed the S&P 500, the Dow Jones, and the Nasdaq, which were up 16.7%, 13.2%, and 20.0% YTD, respectively, as of August 30. On August 30, AAPL’s 12-month average price target was $223.74, indicating a potential upside of about 7%.
AAPL investors and customers are eagerly awaiting the updates the company will provide at its September 10 event. For more information, read Apple Could Launch Three New iPhones on September 10.