3 Reasons for Global Sell-off: China, Oil, and…Apple?

01/27/2016 10:45 am EST

Focus: STOCKS

Michael Berger

President & Founder, Technical420.com

While weak oil prices and a slowing Chinese economy have been headwinds for the stock market, Michael Berger, of Technical420.com, points out that this tech behemoth may also be partly culpable and explains that he favors this alternative as a more attractive investment from a total return perspective.

By definition, a bear market is defined as a decline of 20% or more. There have been 35 bear markets since 1900 and many investors believe that the United States is on the verge of entering its first bear market since 2008.

After the first ten trading sessions of the year, the S&P 500 (SPX) was off to its worst start ever. Since 1928, there have only been five other times when the S&P declined by more than 5% to start the year. Four out of five of those occasions resulted in the index ending the year in positive territory (up 27.6% on average).

Three Reasons for Global Market Weakness

There have been many reasons offered for the weak start to the year, ranging from the Chinese economy, North Korea's hydrogen bomb, the Saudi Arabia/Iran tensions, weak crude oil prices, etc., but no single reason is correct.

We have been able to determine that the global market has been affected by three issues: 1) China, 2) Weak Oil Prices, and 3) Apple, Inc. (AAPL) continues to sell-off.

Is Apple to Blame?

I know what you are thinking...what impact has AAPL had on the global economy? The answer is simple. AAPL is the largest company in the world by market value and shares are down more than 25% from its high on February 24, 2015. This move lower has erased almost $275 billion in market value!

While weak oil prices and a slowing Chinese economy have been headwinds for the stock market, AAPL has been one of the biggest drags on the market. Although we do not expect to see a Chinese economic collapse or a United States recession, things may get worse before they get better.

The stock market is going to find it very hard to get back up to its all time highs unless oil stabilizes and finds a bottom. While oil seems to have a lot of support in the $25-$30 range, there will be quite a bit of resistance once oil tries to rebound. When it comes to oil, what really matters are fundamentals and sentiment.

Down More Than 5% Wednesday

Although AAPL announced the most profitable quarter in American history, the company said it reached the end of an era of unprecedented growth. AAPL is forecasting a sales decline for the first time since 2003.

During the first three months of the year, AAPL expects to generate between $50-$53 billion in revenue. This came in below analysts' estimates for $55.5 billion and follows a holiday quarter in which overall sales and iPhone shipments fell short of projections.

This has sent the price of AAPL shares lower and this will serve as a headwind for the overall market. While we continue to remain favorable on AAPL's long-term outlook, we view Microsoft Corporation (MSFT) as a more attractive investment from a total return perspective.

Michael Berger, Founder and President, Technical420.com

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