Apple's China Woes Shake Markets, Energy Sector Thrives Amidst Volatility

While Disney's downturn continues and the CPI report looms

• Apple's China troubles affect stocks, while energy sector surges and all eyes are on the upcoming CPI report.
• Disney struggles persist. Energy stocks gain momentum and market volatility remains surprisingly low amid challenges.
• Support levels shift, with 4410 in focus; market awaits CPI report for potential direction change.

In this market update, we'll explore the recent developments that have been impacting stocks, from Apple's (AAPL) decline to the resilience of the energy sector and look ahead to the upcoming Consumer Price Index (CPI) report.

On Thursday, markets displayed weakness once again, with the S&P 500 dropping 0.3% and the Nasdaq Composite falling 0.9%. Investors are currently caught in a sort of limbo as they await the release of next week's CPI report, which could potentially provide clarity on the market's direction.

Apple declines

One of the standout stories of the week has been the decline in Apple's stock. This drop was triggered by a Chinese government order prohibiting state workers from using foreign-made phones, including iPhones. As a result, Apple's shares suffered a 2.9% loss in a single day and have shed $190 billion in market capitalization in just two days.

To put this into perspective, Apple owned a substantial 65% share of the Chinese market for mobile phones priced above $600, and China accounted for 24% of all iPhone shipments in the second quarter, surpassing the United States' 21%. The ban on state employees could potentially influence Chinese consumers, posing a significant threat to Apple's largest market.

Disney (DIS), too, faced challenges this week, with its shares closing at their lowest level since 2014. Investors were optimistic for the company's turnaround under the leadership of Bob Iger, but Disney continues to struggle, with a slight decline of just over 1% for the week.

Energy sees an upswing

In contrast to tech giants like Apple, the energy sector has been on a notable upswing. It emerged as the strongest-performing sector in the S&P 500, gaining 1.3% and rising by 18% from its late June lows. This sector has been bustling with activity, particularly as crude oil prices have experienced significant surges. Investors at tastytrade have been actively involved in both listed and futures products linked to the energy sector.

Looking ahead, next week promises a significant economic update with the release of the CPI. Analysts anticipate a month-over-month increase of 0.5% and a 0.2% month-over-month increase for core CPI. This report is especially crucial because it may provide the catalyst needed to break the current market stagnation. The markets are eagerly awaiting this data point to gain some clarity.

Previously, market technicians were eyeing the 4460 level in the S&P 500 as a crucial support level. However, the market has dipped below that level, leaving analysts to wonder if what was once support may now become resistance. The current focus has shifted to finding support at 4410.

Despite the challenges faced by some prominent companies this week, market volatility, as measured by the VIX, remains below 15, which is significantly lower than its historical average. This lack of panic amid recent tech sector weakness is noteworthy, and it suggests a level of resilience in the market.

In conclusion, the markets are currently navigating a mix of challenges and opportunities, with tech giants like Apple facing headwinds while the energy sector surges ahead. As the CPI report looms on the horizon, investors are poised for potential market movements. In times of uncertainty, it's advisable to adhere to your investment plans and long-term objectives.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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