Apple stock ‘could be the canary in the coal mine’ for China reopening: Strategist

Nov 23rd, 2022 12:33 EST

Investors curious about the next move in the broader market would be wise to pay extra attention to shares of multinational tech giant Apple (AAPL).

"One of the reasons that has been helping sentiment, particularly in industrial stocks and things like that, is the idea that China is going to be reopening," Interactive Brokers chief strategist Steve Sosnick said on Yahoo Finance Live (video above). "If there is another wave of lockdowns in China, that really upends that story. It upends global growth potential. And so, yes, Apple could be the canary in the coal mine."

Apple stock has gained about 2% in the past month, underperforming the S&P's nearly 7% gain.

The COVID-19 situation in China, a key manufacturing hub for Apple, has taken a turn for the worse in recent weeks — impacting the operations of Apple, Tesla, and other U.S.-based companies.

China's COVID-19 cases are surging toward record highs just as the country was moving away from its zero-COVID policy, which had spurred optimism in global asset markets.

On Wednesday, China's National Health Commission (NHC) reported over 28,000 infections nationwide in the country for the prior day. That's roughly equivalent to the 2022 peak in April, according to the NHC.

Apple's business has been thrust into the limelight amid the COVID-19 resurgence in China.

"Apple is too big to ignore," Sosnick stressed.

Workers at the Foxconn facility in Zhengzhou, China, a key manufacturing hub for Apple iPhones, clash with authorities. (screenshot)

Violent protests erupted at the flagship plant of iPhone maker Foxconn this week, with protestors smashing windows and clashing with authorities amid harsh COVID-19 restrictions.

"Regarding any violence," Foxconn said in a statement on Wednesday, "the company will continue to communicate with employees and the government to prevent similar incidents from happening again."

If COVID-19 cases continue to climb in China and fresh lockdowns ensue and weigh on global economic growth, the current move in Apple's stock could hint at a broader pullback in markets soon.

Customers experience the new iPhone 14 series smartphones at the Apple Inc flagship store in Shanghai, China, Oct 13, 2022. (CFOTO/Future Publishing via Getty Images)

"After battling the macro headwinds and delivering a strong September quarter/guidance in a stark contrast to the rest of Big Tech, this latest zero Covid situation is an absolute body blow for Apple in its most important holiday quarter," Wedbush Managing Director Dan Ives wrote in a note to clients. "With demand remaining firm into holiday season, we would estimate this negatively impacting roughly 5% of iPhone sales this quarter based on impacted China production/supply issues. While not the news any bull wants to hear from Apple, its a supply issue and related to China's zero Covid policy which is a very frustrating situation for Apple (and its investors) yet again, but not demand driven."

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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