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Why Apple Inc. (NASDAQ:AAPL) Stock is Dropping

Why Apple Inc. (NASDAQ:AAPL) Stock is Dropping

Date Published: 2016-11-14

Author: Ophir Gottlieb

Written by Ophir Gottlieb

Preface
Apple Inc. (NASDAQ:AAPL) stock has suddenly shed $50 billion in market cap since the election, and this is why it's happening.

STORY
Apple Inc. (NASDAQ:AAPL) saw a mighty stock bounce once we learned that earnings were better than expected last quarter and more importantly, that actual growth would return by this quarter and moving forward.

That, together with the highly anticipated ten-year anniversary iPhone 8 and a booming Apple Services segment had investors hungry for what appeared to be one of the few technology giants with a modest valuation. But right now, the company's future is mired in the murky waters of a political vacuum.

President elect Trump had some tough talk surrounding imports, but especially surrounding China. His rationale is based on the reality that China places import tariffs on many U.S. goods (U.S. autos imports have a tariff of around 20%, to help protect Chinese carmakers, for instance), while in response the United States has import duties, but not as punitive.

In a rally held on August 24th, Trump made some clear statements:

I'm going to instruct the US trade representative to bring trade cases against China, both in this country and at the WTO.

I intend to enforce our rules and they know it's coming. They have to understand we're not playing games any longer, folks. We're not playing games.

The 45% is a threat that if they don't behave, if they don't follow the rules and regulations so that we can have it equal on both sides, we will tax you.

Source: Yahoo! Finance

CHINA FIRES BACK
Today China has fired back, and in a rather scary move, specifically named Apple Inc. (NASDAQ:AAPL) and a few other companies and commodities. Here is the response:

China will take a tit-for-tat approach then.

A batch of Boeing orders will be replaced by Airbus.

US auto and iPhone sales in China will suffer a setback, and US soybean and maize imports will be halted. China can also limit the number of Chinese students studying in the US. Trump, as a shrewd businessman, will not be so naïve.

Source: Yahoo! Finance

APPLE INC. AND CHINA, AGAIN
Famed billionaire investor Carl Icahn withdrew a multi-billion position in Apple Inc. stock earlier this year stating his concerns over the risk in China -- specifically how the communist regime was starting to aim rather accurately at the iPhone and it had gotten very contentious.

We have a full CML Pro dossier that discusses the risk, step by step, in great detail, here: Risk Alert: Apple Faces China's Wrath.

WHAT NOW?
It doesn't actually matter whether we believe the next U.S. administration will in fact follow through on campaign trail promises. What does matter is that a new risk, or an old risk renewed, is here. Higher risk requires the expectation of higher returns or the investment is no longer as attractive. The question to answer is whether or not Apple Inc. (NASDAQ:AAPL) is still a good investment with respect to that risk-reward tradeoff.

The author is long shares of Apple Inc. (NASDAQ:AAPL).

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