The S&P 500 clung to a close just above 3,000 today as the market closed its Wednesday session. The measure brings the index close to its historic high-water mark despite continuing fears over trade war policies and the impact of previously announced tariffs. So far, these policies have had an uneven impact on U.S. industries and companies. The most notable impact, however, has been the way this news has hit shares of Amazon.com, Inc. (AMZN).
Compared with other retailers such as Walmart Inc. (WMT), Target Corporation (TGT), Dollar General Corporation (DG), or even Lowe's Companies, Inc. (LOW) home improvement chain stores, Amazon has struggled in the current environment. Clearly, analysts and investors expect that Amazon's natural distribution of so many Chinese-made goods will be hard hit by the tariffs as currently proposed. But if Amazon will be so hard hit, why aren't shares of Apple Inc. (AAPL) experiencing selling pressure?
Comparing Apple and Amazon
Apple announced new iPhones and iPad products with jazzy new features and compelling price points, all timed to hit a wave of prospective customers ready for upgrades. Markets pumped up shares of Apple seemingly without fear of the tariffs set to go into effect in December, even though many of Apple's products are, and will likely continue to be, made in China.
It may be that analysts understand Apple's position in the Chinese economy. For better or worse, Apple has become to the Chinese economy what the big three auto manufacturers are to the U.S. economy: a plentiful source of jobs for skilled and semi-skilled laborers. Nearly 2 million people are employed in China in the manufacture of Apple's products alone. By comparison, nearly 3 million people are employed in the U.S. automotive manufacturing industry – but that includes all manufacturers, not just one.
Some sources have astutely identified that both Apple's management, China’s government, and the White House all understand that China needs Apple even more than Apple needs China. With that in mind, analysts seem willing to price in the fact that all three of these parties have the incentive to prevent barriers to Apple's success, whereas the same is not true for Amazon.
Is Apple Dependent on China, or Is It the Other Way Around?
Amazon's vast network of retailers, suppliers, distributors, and technology workers is in no way exclusive to China and has no particular bearing on China's economy. Considering its competition with the likes of Alibaba Group Holding Limited (BABA) and Tencent Holdings Limited (TCEHY), it is more likely a drain on China's economy. But much of what is purchased on Amazon is made in China and is consequently subject to the dictates of the new tariffs being imposed on Chinese goods. Thus, analysts fear that Amazon will likely feel the pinch.
The difference between the impact on Amazon shares and Apple shares can be seen even more profoundly when the shares are priced in Chinese currency. Consider the following chart which factors in the cost of Apple and Amazon if they were priced in Chinese yuan rather than U.S. dollars. The stark difference in price trend begins in mid-July, just as the tariff talk heats up in news headlines. Time will tell if these trends represent an over-reaction or the wisdom of the crowds correctly predicting a blatant disparity between two companies' business positions.
The Bottom Line
Markets moved higher today as investors brought the S&P 500 close to historic highs. Apple's announcements led to a bump in share prices despite the potential impact of tariffs on Apple's business environment. This may be because Apple's embedded position in China's economy is much more favorable for insuring its success. Amazon, by comparison, does not seem to be as favorably positioned.
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