In the financial markets, the dawn of the new year has looked much like the twilight of the old: jittery and volatile. Markets plummeted after Apple warned, late on the year’s first day of trading, of weak iPhone sales in China — crystallising concerns that a Chinese slowdown, exacerbated by President Donald Trump’s tariffs, could stiffen the headwinds facing the US corporate sector. They bounced on Friday after US jobs growth figures for December smashed expectations, and Jay Powell, the Federal Reserve chair, made emollient noises on interest rates.
Apple’s first revenue warning in 16 years was certainly a flashing red light. It highlighted the extent to which US-China trade tensions are now hitting the real economy in both countries and beyond. The effect not just on Chinese consumer demand but on US companies’ costs and supply chains was cited this week by other businesses, including Tesla. It was a factor, too, in disappointing manufacturing indices from the Institute for Supply Management in the US, and China’s Caixin survey.
Yet with America’s S&P 500 index now down about 15 per cent from its record high in October, there is a danger that the nerves are overdone — or, as Mr Powell put it, that investors are pricing in downside risks that are “well ahead of the data”. US equity valuations have reached more sensible levels, with the S&P on a forward price/earnings ratio of about 15 times, close to the mean for the past decade.