Apple investors love Trump and Xi’s trade-war truce, but the iPhone giant’s China woes persist (AAPL)

ChinaFotoPress via Getty Images

Apple shares surged on Monday as the outcome of President Donald Trump and Chinese President Xi Jinping’s weekend G20 summit boosted the broader trade-sensitive technology sector.
While the market responded favorably to the leaders’ truce in the international trade war, Apple shareholders still have to grapple with slowing sales in China, an equity analyst warned.
Track Apple shares here in real time.

Apple shareholders were among the technology investors rewarded Monday when stocks surged in the wake of President Donald Trump and Chinese President Xi Jinping’s weekend G20 meeting.

Shares jumped 3%, to the highest level in nearly two months, as the tech sector responded in kind to the leaders reaching a truce in the trade war between the US and China. Stateside, markets soared. The S&P 500 hit a fresh high.

But the iPhone giant is still vulnerable to slowing growth in the Chinese economy — hit by the trade dispute Trump and Xi on Saturday vowed to temporarily ease — Bank of America Merrill Lynch warned.

"Extrapolating from third-party data on publisher revenues, Apple App store sales slowed down during C2Q, with a meaningful slowdown in China," wrote Wamsi Mohan, the firm’s analyst, referring to the calendar second quarter. He added that sales appeared to pick up in the second half of June.

Sensor Tower data indicated that overall global App Store sales during the first half of the year rose 18% compared to the same time last year, he said. Still, given a "weaker macroeconomic environment" and foreign-exchange challenges, Mohan trimmed his year-over-year Q3 services growth estimates to 16% from 18%.

A bonus just for you: Click here to claim 30 days of access to Business Insider PRIME

The analyst also lowered his full-year earnings-per-share expectations to $11.68 from $11.74, and reduced his revenue-growth expectations for the fourth quarter to 17% from 21%. Mohan maintained his bullish rating and $230 target.

Bank of America Merrill Lynch

Bank of America Merrill Lynch is the latest in a long line of firms which have tempered their expectations for Apple amid the US-China trade war and a lackluster market reception to some of the company’s new offerings this year.

In May, Citi said iPhone sales could fall by half during the second half of 2019 as a direct result of trade tensions between the US and China. Morgan Stanley had warned of a similar trade war-related fallout. Meanwhile HSBC has cut its Apple price target four times this year on China tensions.

More broadly, growth in China’s economy — the second largest in the world after the US — has fallen under a microscope this year, throwing a wrench in Apple’s growth story.

Factory activity there unexpectedly fell in June, according to the Caixin/Markit Manufacturing Purchasing Managers’ Index latest reading on Sunday. Coming in at 49.4, that was its lowest reading since January.

Now read more Apple coverage from Markets Insider and Business Insider:

Apple faces significant risks in China. Warnings are pouring in, and Citi sees its iPhone sales there getting cut in half.

Apple is making changes to its subscription bundle, Apple News Plus, after a slow start, publishing execs say

Here’s why Apple’s plan to escape Trump’s tariffs by building iPhones outside of China won’t actually be possible anytime soon

Markets Insider

NOW WATCH: ‘Blue’s Clues’ is making a comeback with a new look and new host. Here’s what the original host, Steve Burns, did after he quit the show.