For the week ending September 8, 2023
What Happened: China bans iPhones for Government Work
What’s It Mean: It’s really still not clear and the speculation is running wild.
Why do we care? Slightly under 20% of Apple’s revenue comes from China. Many are speculating that this move is the start of a larger movement to limit Apple products from being sold in China. We believe this is a hard argument to swallow since Foxconn, the manufacturer in China responsible for most iPhones is also the largest employer in the country. With the backdrop of a weakening Chinese economy, in our opinion, it would not make much sense to anger the company responsible for this workforce.
The move has most on Wall-Street, including me, scratching their heads. As with any uncertainty, the reflexive action is negativity and has applied pressure to Apple shares. Since Apple is one of the largest stocks within the S&P 500, and NASDAQ 100, this resulted in broader market weakness for the week and start to September.
This situation is developing and one we’ll keep a close eye on. Relations between the US and China have been on thin ice for a while now and in our opinion, this doesn’t help in strengthening our economic partnership.
Quint had the opportunity to appear on Schwab Network this week from the floor of the NYSE. You can watch his clip HERE.
What’s It Mean: Most folks don’t quite understand how dynamic the S&P 500 is and how often new companies are added while others are removed. This week was just another example of how a relatively new company, AirBnB, has replaced one of the more legacy positions, Newell Rubbermaid and exhibits how over time a natural transition takes place within S&P 500.
Why do we care? One of the reasons markets tend to head higher over long periods of times is not always due to economic expansion but rather new companies taking up the place of older, dying companies no longer innovating or growing. General investors never have to worry about finding the next great company when the S&P will naturally find them for you.
If you own holdings in the S&P 500, you’re a proud owner of Nvidia, one of the most innovative companies in the world. You also own the likes of Google, Apple, Microsoft and of course Tesla. In years to come if we end up mining asteroids or traveling through space, my guess is those companies will also end up in the S&P 500. As long as we can innovate and grow a business in the US, we think it is tough to bet against the markets for longer than short term cycle.
~ Until next time
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