China waves trigger soul-searching on Apple

While panic stock selling Monday zapped markets around the world, the drama and intrigue of the day could be illustrated in one company's shares — Apple (AAPL).

Down as much as 10% in the first half-hour of Wall Street trading, as the Dow Jones average fell a historic 1,000 points, Apple then bounced back after a surprise email from Chief Executive Tim Cook to a news commentator and sparked a rebound that led the rest of the market almost all the way back before plunging again. The market closed down 588.40 points, or 3.6%, to 15,871.35.

When Wall Street awoke Monday to a massive sell-off in the Shanghai composite index, investors quickly trained a microscope on Apple shares, wondering how the company would fare if China's economy continued to slow. Even before the bell sounded, Apple shares dropped 5% in pre-market trading. After a day of sharp ups and downs,the stock closed down 2.5% at $103.12. Apple represents about 4% of the Dow's value.

What became clear: As the world goes, so goes Apple — and the other way around.

"Because Apple is large, bad news in China translates to bad news for Apple to expand there, and then that has an impact on the entire market," University at Buffalo finance professor Cristian Tiu told USA TODAY in an email. China is a key growth market for Apple.

Apple is also a popular stock among institutional investors; you are likely to find it in your retirement fund. "If Apple stock falls, it drags down so many other stocks in so many portfolios because it is a part of so many portfolios," Tiu said,

As traders grappled with the start of a punishing day, CNBCstock commentator Jim Cramer revealed shortly after 9 a.m. Cook's emailed response to his questions. Cook struck a confident tone.

"I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August," Cook wrote.

In recent weeks, he noted, iPhone activations in China had "accelerated."

"Obviously, I can't predict the future, but our performance so far this quarter is reassuring," Cook said.

Within five minutes, investors appeared to regain some confidence in the stock. For a moment, shares jumped. Then just as quickly, the shares reversed direction. When the market opened, Apple stood at $95.17, down 10% from Friday's close of $105.76. During the first 15 minutes of trading, shares for the maker of the iPhone, iPad and Apple Watch soared back to about $103, regaining nearly all the value they had lost. Less than 10 minutes later, shares had fallen back to about $99. Over the next couple of hours, the stock took a jagged, up-and-down route to its one-day high of $108.80 shortly after 12 p.m.

By afternoon, Apple shares plunged again. The stock fell back into the $101 range around 3:20 p.m. before finally closing the day at $103.12.

Altogether, the shares fluctuated between $92 and $108.90.

Apple's turbulence mirrored the market's seesaw day. During that period, the Dow came within about 100 points of positive territory.

"I think there's tremendous institutional and retail interest in Apple, and the combination of that with the liquidity that's there does spawn volatility," Robert W. Baird analyst Will Power said in an interview.

In an interconnected global economy, trouble for China means trouble for many U.S. companies that make and sell products there. "Everyone's worried about China," Cowen managing director Timothy Arcuri said. "At the end of the day, China is so much a big piece of global demand now that the whole market is affected."

If China's stock market contraction deepens, investors will be forced to gauge the depths of the impact on Apple and, correspondingly, on the broader U.S. equities market.

Cowen's Arcuri said Apple is a "victim of their own success," in part because soaring iPhone sales have fueled enormous profits and similarly outsize expectations. That success story might soon incorporate more talk about China's troubles than the promises afforded by a new iPhone or the recently introduced Apple Watch.

"When China gets the flu, everyone needs to watch out," Arcuri said. "It's been such a long bull run in the market that it's very easy to say, 'Even if I'm not up as much as I was, I'm going to take my chips off the table here.' "

At some point, investors will decide that Apple's stock is appropriately priced to reflect China.

"Of course I'm concerned about China," Robert W. Baird's Power said. "But I guess the real question for investors is when is China de-risked? At what price are China concerns fully reflected in Apple stock? That's the million-dollar question."

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey