How Will the Latest Trade War Battle Affect Apple Shares?

Shares of Apple fell 5% after the latest U.S.-China trade war escalation.

On Monday, the Dow Jones Industrial Average fell by 700 points and the S&P 500 fell 2.7%. This puts the Dow on track for its worst-performing day of 2019. 

Stocks fell across the board, including Apple. As the trade war has dragged on, the company has been a primary target of investor concern. And on Monday, the company’s shares were down 5% mid-morning. 

Last week, President Trump announced 10% tariffs on $300 billion worth of Chinese goods. These tariffs will apply to a number of different items, including items used in Apple products. This means Apple will have to choose to either eat the costs or pass them onto consumers.

Analysts Stay Bullish When It Comes to Apple

Surprisingly, many analysts seemed surprisingly bullish when it comes to the impact the tariffs will have on Apple. A JP Morgan analyst said that Apple is unlikely to pass on these costs to the consumer and gave the company an overweight rating. 

Cowan and Bank of America analysts both gave Apple a buy rating. A Bank of America analyst noted that this pullback is “an especially attractive opportunity to buy shares of Apple.”

Ming-Chi Kuo of TF International Securities is considered one of the top Apple analysts in the world. On Sunday, Kuo released a note saying that Apple most likely has precautions already in place for this situation and is unlikely to pass on the costs to iPhone customers.

Kuo did acknowledge that eating the costs would hurt Apple’s bottom line which could cause short-term problems for the company. But absorbing the costs would help Apple’s relationships with its customers and preserve its image over the long-run. 

What’s Next for Apple?

The positive reaction from analysts is partly due to the strong earnings report Apple released just last week. The earnings report was better than expected and showed the company is growing across several key areas. 

The earnings report showed that the company continues to make strong progress in its wearables business and subscriptions. However, the iPhone still accounts for roughly half of Apple’s revenue so declining sales will continue to hurt it going forward.