Dow Drops More Than 600 Points on Apple Warning, China Fears

All three major indices dropped more than 2% Thursday.

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Stocks tumbled on Thursday, Jan. 3, after a revenue warning from Apple Inc. (AAPL) - Get Apple Inc. (AAPL) Report raised serious questions about the health of the world economy.

The Dow Jones Industrial Average slumped 660 points, or 2.83%, to 22,686 - at its low for the session the Dow dropped 677 points. The S&P 500 was down 2.48%, and the Nasdaq declined 3%.

Apple's warning sent ripples around world financial markets with investors piling into safe-haven assets such as the Japanese yen amid renewed concerns over the effect of the ongoing trade war between Washington and Beijing. Asian shares closed Thursday's session lower and European shares fell sharply.

Apple was down 9.96% on Thursday after the tech giant cut its forecast for fiscal first-quarter revenue - the holiday quarter - thanks in part to slowing sales in China.

In a letter to investors published after the close of trading on Wednesday, Apple CEO Tim Cook said revenue for the three months ended in December would be about $84 billion, below analysts' estimates of roughly $94 billion and the company's own previous guidance of between $89 billion and $93 billion.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China," Cook said. "In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad."

Cook pinned the weaker iPhone demand in China on several factors, including a slowing economy worsened by "rising trade tensions with the United States" and high prices tied to the strength of the U.S. dollar.

"There is no sugar coating this announcement," wrote Jim Cramer and the Action Alerts PLUS team, which holds Apple in its portfolio. "It's a clear-cut setback for Apple and because of the company's size, it represents another indication of a weakening global economy. All in, we fully expect near-term pressure to ensue, but this guidance cut was a necessary evil as it will remove some of the uncertainty that has hung over the stock."

Additionally, Kevin Hassett, an economic adviser to the Trump administration, told CNN Thursday that the slowdown in China will hurt the bottom lines of numerous domestic companies. 

"There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded... until we get a deal with China. It's not going to be just Apple," Hassett said. 

Also denting sentiment Thursday was a fall in the ISM manufacturing survey to 54.1 in December from 59.3 in the previous month. Estimates had called for the survey to register 57.9 in December. 

The index came in well above the 50 mark that separates growth from contraction but was at its lowest since November 2016, led to the downside by an 11-point slump in new orders to 51.1 from 62.1 and a 2-point slide in employment activity to 56.2 from 58.4.

Bristol-Myers Squibb Co. (BMY) - Get Bristol-Myers Squibb Company Report reached a deal to buy cancer drug specialist Celgene Corp. (CELG) - Get Celgene Corporation Report for $74 billion in cash and stock.

Bristol-Myers said Celgene investors would receive one Bristol-Myers share and $50 in cash for each Celgene shares, as well as a special rights issue that will payoff if the merged company meets certain business targets. The deal values Celgene at $102.43 a share, a 53.7% premium to Wednesday's closing price. The combined group -- which will be 69% owned by Bristol-Myers -- would have a portfolio with nine drugs that generate more than $1 billion in sales, the companies said.

Bristol-Myers shares fell 13.26% while Celgene jumped 20.6% to $80.43.

General Motors Co. (GM) - Get General Motors Company (GM) Report said fourth-quarter deliveries fell 2.7% and 1.6% in 2018. The automaker also named Mark Reuss as president. He formerly served as chief of GM's global product group and Cadillac.

GM shares declined 4.16%.

Delta Air Lines Inc. (DAL) - Get Delta Air Lines, Inc. Report fell 8.96% after saying that unit revenue in the fourth quarter grew about 3%, lower than previous guidance of 3.5% growth.

A strong private payrolls report from Automatic Data Processing for December was overshadowed by the warning from Apple. ADP said Thursday that the U.S. private sector added 271,000 jobs last month, easily beating economists' estimates of 180,000.