The stock market was volatile on Friday following a rough retail sales report and an escalation in trade tensions between the U.S. and China. Sales at U.S. retailers and restaurants slumped 16.4% in April compared to March. The decline was far worse for some categories, with a 78.8% drop for clothing stores and a 60.6% drop for electronics and appliance stores. The Dow Jones Industrial Average (^DJI +1.79%) was down 0.4% at 12:50 p.m. EDT.
Shares of Apple (AAPL +2.59%) and Boeing (BA +2.06%) contributed to the Dow's decline on Friday. Apple stock sank after China reportedly threatened to retaliate against U.S. companies for a ramped-up U.S. effort to block sales of semiconductors to Huawei. Meanwhile, Boeing stock headed lower as the company launched an initiative to get passengers back on planes.
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Apple could be in China's crosshairs
The U.S. Commerce Department amended an export rule on Friday to "narrowly and strategically target Huawei's acquisition of semiconductors that are the direct product of certain U.S. software and technology ." Huawei is a Chinese technology company that sells consumer electronics, smartphones, and telecommunications equipment.
The move could effectively prevent global chipmakers from shipping semiconductors to Huawei. In response, China's Global Times reported on Friday that China was ready to put certain U.S. companies on an "unreliable entity list," including Apple. The retaliation from China could include investigations and restrictions on U.S. companies.
Apple depends on China for manufacturing many of its products, as well as for a significant chunk of its revenue. In the company's fiscal second quarter, China produced $9.5 billion of revenue for the iPhone maker. Apple has been working to diversify its manufacturing base, reportedly moving some production of its popular AirPods to Vietnam. But lowering its dependence on China will be a years-long process.
With Apple's supply chain under some stress from the pandemic, and with demand for its products tumbling as stay-at-home orders crimp consumer spending, a re-ignition of the trade war between the U.S. and China is the last thing Apple needs.
This news comes on the heels of another piece of significant semiconductor news: Taiwan Semiconductor Manufacturing will build a $12 billion factory in Arizona over nine years. TSMC is directly exposed to the Commerce Department's amended rule on Huawei.
Apple stock was down 1.7% by early Friday afternoon as the battle over the semiconductor supply chain heated up. Shares are now 7% below their 52-week high.
Boeing will try to convince people to fly again
Boeing's future depends on the recovery of the air travel industry. With the pandemic keeping people at home in the United States and in many countries around the world, demand for air travel has fallen off a cliff. Even once economies reopen, people may remain reluctant to fly if the pandemic isn't entirely under control.
On Thursday, Boeing announced its Confident Travel Initiative. Under the initiative, a team will develop solutions to minimize health risks and raise awareness of safeguards that have been put in place. The team will work with airlines, regulators, infectious disease experts, behavioral specialists, passengers, and other industry stakeholders to come up with industry-recognized safety recommendations.
"Air travel is coming back. As that happens, we want passengers and crews to board Boeing airplanes without hesitation," said Mike Delaney, head of the Confident Travel Initiative.
No matter the amount of convincing Boeing tries to do, the fact remains that an airplane is a confined space packed with people. Safety measures like requiring face coverings may reduce the risk for passengers, but they will also make the experience of flying on a commercial airplane even more unpleasant that it was before the pandemic.
The quicker the recovery in air travel demand, the quicker airlines will get back to ordering and taking delivery of Boeing's planes. Unfortunately for Boeing, the pace of the recovery is largely out of its hands. Someone who's afraid to fly due to the pandemic isn't going to be easily convinced that flying is safe. The recovery will likely take years, no matter what Boeing does.
Shares of Boeing were down 2.2% by early Friday afternoon. The battered stock is now down about 69% from its 52-week high.
