about the price they're paying, celgene is up 25%. that's spreading through the rest of the biotech sector seeing some others move higher it is a seasonally good time as they head into the jpmorgan health care conference next week a lot of them start talking about pipelines and usually get a lot of good buzz, so going into it having this big deal gives them a tail wind as we are seeing tech hit hard today back to you guys >> all right thank you. it is 8:00 a.m. at apple headquarters in cupertino, california, 11:00 a.m. on wall street, and "squawk alley" is live.

welcome to "squawk alley." i am jon fortt at post 9, morgan brennan and sara eisen carl has the day off we begin this morning with apple. stock plummeting after the company announced holiday quarterly revenue in a letter to investors saying i think sales were weaker than expected, particularly in greater china. goldman, sachs, rod hall, sits down with us after he cut the apple price target first, josh lipton had the big interview of the day and exclusive with tim cook yesterday. he joins us now with highlights. josh >> jon, i sat down with tim cook he explained why his company

slashed revenue guidance it was because of the iphone cook pointed his finger at china. >> as we look at what's going on in china, it is clear that the economy began to slow there for the second half. and what i believe to be the case is the trade tensions between the united states and china put additional pressure on their economy. as we saw as the quarter went on, things like traffic in our retail stores, traffic in channel partner stores, the reports of the smart phone industry contracting, particularly bad in november, i haven't seen the december number yet, but i would guess that wouldn't be good either, so that's what we've seen >> but it wasn't just china. developed markets disappointed too. so what is cook's game plan to spur iphone upgrades in quarters ahead? he is focused in part on

trade-in programs. >> to a consumer, the trade-in looks like a subsidy, it lowers the price of the phone you want. there's a substantial benefit, economic and environmental from trade-in we're also working on placing ability to do monthly charges in so it begins to look like more of the traditional way of paying for it through the carrier by taking the rates out for 24 months or so so you wind up getting incredible new phone that's better than you had for 20 or $30 a month or so. >> but investors aren't buying that strategy initially here clearly a lot of skepticism this morning. jon? >> josh, i had a question for you. i know you pushed him on exactly what they were seeing on the ground in china. so when people worry about things like boycotts of american products like the apple, is that

it i couldn't get a clear picture what was your impression >> that was not it i have seen those reports too, i definitely asked tim cook, do you think you're being caught in the crossfire, do you think china's consumers are in some way boycotting products because they're upset with the trade war. cook saying that is not his sense. he thought there was maybe a small part of what's going on. he simply thought trade tensions were pressuring, adding further pressure to the chinese economy and that was impacting his business listen, he is at the helm of a big, important american company that he says is being impacted here i asked have you relayed these concerns to president trump, to the trump administration he told me he has relayed those concerns in the past to the administration, laid out his case, and feels likesq he is beg listened to in his words. >> thank you for that great interview. joining us, goldman's apple

analyst rod hall that says apple has to cut 2019 numbers further and compares them to no kia. rod, thanks for joining us based on the cut, you now have the lowest price target on the street nokia, that sounds harsh lay that argument out for me >> let me just clarify that. we're not comparing to nokia at all in terms of trying to say apple is like nokia. i want to be clear what we said in our report is that what we observed with nokia in late 2007 as that downturn got under way was rapid reduction in replacement activity by consumers and the point i was trying to make is that a company like apple, near full penetration can see rapid reduction in replacement volume if you get into macro weakness like we're seeing in china we definitely don't think --

nokia in 2007, if i can paint a picture for you, that company at that point was facing a complete product transition, so when you get to 2009, 2010, the smart phone is taking over nokia as we know is losing share to apple there we don't see any similar product transition in the market today, there's no alternative to the smart phone. the smart phone is the primary device people use. the point is that when you get into macro weakness, replacement demand can blow out quickly, i think that's what we're observing in china. >> rod, how much of this do you think is macro weakness, slowdown in china, trade tensions, et cetera, the fact it is a higher priced phone than its competitors in the market there versus an apple specific story in that country. >> i think it is mostly macro to be honest with you i believe what has happened in china probably relates to concerns over trade and jobs and

so on. we have seen very slow consumer behavior that's worsened through the december quarter i believe that's one we have seen from apple. i don't believe just to comment on that, something you were talking about earlier, too, i think at the early stage of december we were thinking that there may be share loss, due to nationalism and things like that in china that may be a slight story, but i think much more what's going on in china relates to the consumer and consumer weakness i don't really believe apple is losing a lot of share there. >> rod, how are you modeling services business, revenue growth over time as relates to the iphone and general devices apple put out this number yesterday i believe on 100 million active devices added to the ecosystem, but i wonder how much the overall devices matter versus the iphone as that hero

device, lead device, that sun the other planets of orbiting. how much does growth in iphone determine whether people sign up for apple music or sign up for other services that really get services growth going. >> yeah. we were modeling just under 22% services revenue growth in calendar '19 their fiscal year end in september, to put it in calendar year terms we have that flowing from 26.5% in calendar '18. in terms of how important the current trajectory of the current iphone is to that number, not incredibly important. that number relates to installed base of iphones as opposed to rate of replacement of iphones you know that installed base is

growing more slowly than iphone unit growth number is growing. if you have an old iphone and don't replace it, you're still using whatever services you were using, mostly app store down loads -- >> but are you using more? can services grow if the installed base of iphones isn't growing, if it stays stable. >> well, you know what apple really needs to do is get more penetration of paid services we believe the penetration rate of the install is just over 10%, and in order to grow that services line beyond what the market already expects, they really need to increase that penetration. so there are any number of ways to do that so far that penetration has been at least in our opinion somewhat disappointing. we think that apple will look to do things like maybe do a combined services package, people labeled that something like an apple prime package

where maybe you would pass video content in there, package in music and pay one price. maybe payments comes into the mix. there are various ways to try to increase that penetration. so far they haven't had a lot of success with that. >> rod, what strikes me is just the change in tone from apple on china, from tim cook specifically q4, november 1st, wasn't long ago they posted 16% revenue growth out of china. they said china looks great. very strong last quarter he speaks often bullishly about the chinese market as a source of growth. so does the fact that they've changed the outlook so much say more about visibility of corporate america now into that key market or something specifically concerning with regard to apple's own ability to forecast and communicate >> you know, i wouldn't say that, tim is always referring to the current quarter they just

reported when he makes comments about trajectory, and what we saw going on in china, we called this out pretty early, back in november we said there was a lot of risk to apple earnings due to what's going on in china, and obviously that's played out. i think that what occurred in china occurred, things deteriorated pretty badly after apple reported earnings. i think they saw weakness in china, guidance contemplated that things deteriorated worse than anticipated that they would. >> thank you for joining us by the phone. ylan mui has more on this. >> that's right. kevin hasset tried to put news in broader context, saying global economies are slowing

u.s. is growing faster than other economies, and that's going to effect large multinationals like apple. >> you look at u.s. multinationals, it is natural their profits to the extent generated in china would be going down, but the good news is put pressure on china to come to the table and make a deal. president trump mentioned at the cabinet meeting that he is expecting a lot of good trade news this year. >> he said he sees a lot of room for positive gain. he also talked about recent market volatility, and blames what's happening overseas for the turmoil. >> i speak regularly with people on wall street this is something that people have been seeing coming for a good long while. and it is one reason why you can go back and look at tv clips in december that i was saying the chinese economy is slowing, one of the reasons why markets are responding like they are is people are downgrading

earnings forecast for folks with a lot of business in china >> and he did acknowledge that part of the reason china's economy is slowing is because of u.s. tariff policy the administration held that that's part of the point, to put pressure on china again to get them to the table. back to you. >> it is interesting to hear the comments there seems to be a brewing debate, when you have the s&p 500, something like 40, 50% of revenues are gleaned from markets overseas, including china, whether this trade situation now starts to become murkier with a slowdown in china when it is effecting u.s. companies. sounds like the trump administration doesn't see it that way >> that's right. there was an oblique tweet from the president this morning which seemingly referenced apple news. president trump saying at some point these tough actions needed to be done so the administration from their side may say this is a win this is a sign what we are doing

is working, that it is hurting china, the u.s. economy is strong, forecasting something like 3% growth this year, we can stand it, china can't. >> ylan mui, thank you and sticking with china and apple, let's bring in larry haggerty, long time apple shareholder, managing director at ljh investments, and tim wall with the second lowest price target on the street guys, good morning tim, a lot of talk about china this morning as relates to apple, but apple didn't entirely point to china as the whole issue. they also pointed to some developed markets and upgrade issues i'm wondering as you see numbers and digest what tim cook said to josh lipton, to what degree might the overall iphone story be at risk here, this idea i put forth a bit ago that it is possible that apple overextended

with the iphone x as far as pricing and created the haves, many have a level x and others do not >> thanks for having me. i think the two are related. and to touch on china quickly, it has been weak a few years apple saw growth in 2017, and they're losing share this year, and it has been happening most of the year. we think it is not just a macro issue. i think there's some market share loss going on, and i think it relates to price elasticity. i don't think it is trade war related. we think it is not a compelling product. and in china, that's one of the places that's cutting edge for features on devices and it is not working. when you look more broadly, i think it is price elasticity, the product is stale since the 6 and 6 plus, haven't

had a successful cycle even the x was modestly successful we think it is the wait of several years without compelling innovation in the product. >> larry, apple had been so consistent, just rock solid as far as how it was able to deliver on numbers whether you're holding on, selling a little, buying, what is the data point that jumps out most out of this apple miss. >> i think interestingly, jon, didn't come from apple, came from ten cent. the chinese market, in china, use of smart phone is to play games. during the fourth quarter, the government because they were worried about youth going astray basically stopped release of new games. you get back to apple with the

problem of price elasticity. apple phone is over a thousand dollars, competitors are much less than that if you use the phone to play games, the apple phone is disadvantaged. if there are no new games, the phone is double disadvantaged. >> not even the chinese economy, not sentiment on apple, you think it has to do with gaming. >> i think the gaming is probably in the neighborhood of 50% of the shortfall, and the problem is, jon, this is not going to go away the chinese consumer is not going to change their behavior tim said on the call that the app store is going to have more apps coming out in china when that happens, i expect share to go up and apple to be able to justify the premium price for its product. but right now, the chinese market is i think going to be very difficult and you have to take that into consideration when you look at the stock but you can't break your neck falling out of the basement. stock is seven times cash flow

it checks off every metric, high return on equity, high return on margins. >> you're a shareholder of apple. are you a believer enough that you're buying on the dip of 9% >> i think probably very shortly we'll add to the position. we haven't so far because i wanted to get my feelings out. i didn't want to front run folks. the value proposition here in the stock, jon, if you believe in value investing, and most charts say it is down in the basement with apple it hit the sub basement now you have a marvelous company that rarely gets into the value universe the services business in the united states and retail business is probably one of the best consumer businesses i've seen investors are going to get a bonus in quarters to come.

tim will disclose what the margins are. i think the margins are going to be sensational >> does that matter as much as services growth? what if iphone slowing actually ends up slowing down services. i'm not clear how the two are related, if services growth lags iphone growth and iphone slowdown turns into services slowdown or what >> i don't think it matters, jon, because what's happening is you're at seven times cash flow. and you have $50 billion of free cash flow and management that's been responsible and the board which is a high quality board for allocating free cash flow efficiently. return from buying stock now is 8%, plus you save 2% on the dividend and cash rurch from hoarding the stock and free cash flow is nothing. you have an enormous spread. it is hard to get the stock down when you have a board that understands that and the math

that's this compelling at the end of the day in this business you go for the math and try to leave the emotions at the post and the race track. >> tim, when you look at previous comments from tim cook, the fact that he seemed cautiously optimistic not that long ago, and you compare that against warnings and guidance cuts from apple suppliers, the fact that you've seen other consumer facing companies that sell high end, high priced goods in china also coming out and saying they're seeing weakness, why was the company so flat footed did we see chinese economic growth slow that dramatically and quickly or is this a company that wasn't gauging correctly and sort of missed the reversal here >> i think management teams are going to be optimistic they're going to be optimistic around business and product cycles we think they probably came into this last set of phones thinking

they were going to hit some sweet spots with the larger screen on the max and the xr filling in a price point in the middle, and they have to judge what consumer behavior will be like as well it is happening when currency is going against them, component prices are higher, and the local competitors in china are embolden because they're all growing and taking share in china and internationally. so it is tougher setup for them i would say from a competitive standpoint i think that's what's at the root of it, more so than overall macro issue. >> how much may have to do with singles day. i recall apple was a popular brand brand on singles day they seemed to have a big marketing push if they had a big single day and saw drop off in the back half of the quarter, could it be that

some demand was pulled forward and that exacerbated that effect tim cook talked about? >> it could be, the way the timing looks in november and december was weak. they were up 3% on the year last year in china. first, second, third quarter weren't great either maybe it was more back end loaded, but i think the weight of the market share loss has been weighing on them for multiple quarters now. i don't think it is anything new. we haven't seen growth in that tier in the last four years. talking about galaxy notes and s line and the iphone. so we really have saturated that highest end and apple is already working at 75, 80% market share. it is tough for them to advance the market without coming down tier >> before we let you both go, larry, i want your thoughts on a

conversation we were having before we went on camera, the idea of options, the fact that you have a number of apple employees that own the stock what does this mean when you see a 30% plus drop in shares? >> back in '08 when we hit a bear market, one of the great issues for investors was option re-pricing we lost several billion in the stock. employees are down most smart management will one way or another figure out how to make the employees whole, re-pricing options or issuing new options. when wall street makes models, they forecast shares outstanding. shares outstanding over two, three-year period are going to be higher than people think because of the option dilution that i think is highly certain that's a head wind but they can make that up, and a lot of companies make it up by buying stock to offset the option dilution, and math on

buying stock for apple now as i said is far in excess of the option dilution. the option dilution is real and will become an issue in the next 6, 12 months >> it helps somewhat that they use rsus larry, tim, thank you. >> thank you. and apple is a big drag on the dow. the index down more than 500 points, down more than 600 moments ago. you have that surprise guidance weighing on sentiment and technology, worst performing group in the s&p then a disappointing manufacturing number from the u.s., ism manufacturing survey disappointing in a big way, especially the new orders component, weakest level in two years. taking 2% off the dow. apple, boeing, 3 m, worst performers technologies and industrials are being slammed. real estate and utilities are shining in the s&p 500 the other big story and stock

mover is bristol meyers buying celgene. they're spiking on that deal news, up more than 25% bring cnbc contributor bill george bill, you know the industry well does the deal make sense >> it is a very bold move. i think the pipeline definitely needs beefing up they have been losing on the mainstream drugs, and celgene has four major drugs in the pipeline coming along, they're very attractive. this is a bold move. it all depends how the drugs come forward, and if they get to market and fda trials. if they do that, it will be a winner for bristol meyers. if it won't, they'll be way

overpaid there are obvious synergies, they can take out a lot of cost. the risk is they may lose talent in celgene they have to make sure they keep that talent. i would note with regard to 54% premium, that celgene is down because of disappointment on juno it could be worth paying on the other hand, you look at the prices this morning, bristol meyers, worth 74 billion, and that's what they're paying for celgene. it is a big risk. >> we've seen quite a bit of m and a activity in health care the last couple years, among drug makers in general do you think this continues the consolidation wave >> well, it is consolidation and focus. you saw some of the other moves made, pfizer spinning business,

i think everyone has to focus in bio pharma it is hot. that's where it is top companies are worth a great deal if they perform so we'll see what happens. but i think it makes a lot of sense to concentrate energy, cancer drugs, immunology, gene therapy, cell therapy, a lot of new therapies are coming along novartis paid about 15 billion in new acquisitions in the same space. you'll see them bulking up the future pipeline. they can't afford to have drugs go off patent. >> bill, what's your read on what this particular move says about the industry overall the degree of risk that's being taken. does that speak to seeing opportunity or more towards desperation? >> i see it, you think tech is high risk, this is high risk,

high gain. and one of the key risks here is pricing. they're charging very high prices everyone wants to get -- the prices are extremely high. if they hold and if the trump administration doesn't move against pricing, which i'm not -- i'm betting they won't, then these are going to be incredibly valuable pipelines as they come to market and help people, particularly in cancer because you are saving lives, extending lives, people that have no choice you get into one of the things that celgene is working on, there's no treatment for it. it will trim out otc and other generic and peripheral things. focus on how do you get the top pipeline and how do you advance technology

>> bill, it has been a big topic of expectations, speculation, the idea of drug pricing reform. why don't you think it happens with the trump administration? >> they haven't moved in two years. there's been a lot of bluster, but i don't think they're going to move. the law says the government can't negotiate on pricing they would have to pass a law, it would have to be bipartisan, i'm not optimistic on bipartisan deals going through. the republicans could have done it when they had control and chose not to i think you'll see open pricing and downward political pressure on prices, but that only goes so far. you saw a lot of new prices coming in january 1st. people are really aggressive pushing up prices. i suspect you'll see more of that i'm a believer in price competition. all of the drugs in the deal, those are on patent, those are brand new life-saving drugs.

i think they should have opportunity to recover their research because it is a high risk >> what does the scale allow them to do if we expect more consolidation in pharma to respond to this, and companies gain scale, what does that buy them in terms of drug approvals and pricing >> i'm not a big fan of scale. what i'm fan of is having a lot of options in your portfolio because you don't know what's coming, sara at medtronic, we had a lot of options in the portfolio, and even there, which is more predictable than bio pharma, you didn't know what would make it and when you get punished badly by the market if you go off patent without a replacement. it gives them many more options. they have to have those. there will always be setbacks, trials that don't work i served on novartis board ten years, you could come to end stage, not know if it makes it

or not if it does, $5 billion up side and revenue, if it doesn't, back to the drawing board it happened to both these companies. i think having more options in the portfolio is a real plus and i think all of the majors, you can't depend on one or two major drugs and cost of buying them after on market is truly high. >> before we let you go, i want to shift gears you served on a number of boards across a number of industries. what are you hearing in terms of the economic slowdown in china and at what point across the different industries would you expect this to be a greater risk for u.s. companies >> i think china risks are real. now the trump administration is talking about making a deal. i'm more skeptical about a deal. i'm not sure you could have a deal like the former nafta, but i think that's

the big risk i think the market is slowing down, big players like apple are honest in announcing it. general motors does a heck of a good business there, and a lot of companies do, so i think it is a real risk for people. one, the market slowdown, and two, behind that are trade negotiations and chinese government can act unilaterally don't need congress to approve things they can do what they want to do i think it is a big risk i felt that throughout 2018. now it is coming to the fore i think the chinese will take steps to improve their own economy, but may be less friendly toward american companies unless we get an attractive trade deal, and i hope we do, but i think it will take longer than anyone thinks the chinese do not move quickly on deals i can tell you that. and you want intellectual property deal and market access that people worked on for five

years, that takes time it could be a significant risk for anyone with a large china% -- china percent in their portfolio. >> thank you for being with us speaking of china and moves that the administration can make without congress, we have breaking news out of the state department sue herera back at headquarters. indeed another ratcheting up of tensions between the two countries. the state department has just issued a travel advisory to u.s. citizens about china, pushing it to a level two basically they say exercise increased caution, if you choose to go to china because china uses arbitrary enforcement of local laws and special restrictions on dual u.s. chinese nationals. they say chinese authorities asserted broad authority to prohibit citizens from leaving china by using an exit ban and they say frequently you do not know about that exit ban

until you try to exit the country. china doesn't recognize dual nationality of u.s. and chinese citizens and citizens of chinese heritage may be subject to additional scrutiny and harassment and china may prevent the u.s. embassy from providing consular services. so they moved it to level two, exercise increased caution it is applied to countries like bangladesh and burma it is increasing tensions between the u.s. and china, morgan >> sue herera, thank you for bringing us that european markets closing a few minutes ago. seema mody has today's action. looks like it has been ugly for some of the major markets in europe as well. >> i think what we're seeing, morgan, is that apple news is playing out in different markets. that's exactly what we're seeing across europe. more than 1% move to the down side in germany and france

tech sobbiector is the key laggd tech suppliers under pressure in europe, ams makes facial recognition sensors used in the latest apple iphones dialog semiconductor st microelectronics. european luxury retailers lower as well on fears the chinese consumer is pulling back worth noting, china accounts for one-third of global luxury spend. fears around china aren't new. shares of lvmh have dropped more than 15% in three months outside of retail, a number of european companies have slow down daimler, bmw issued profit warnings in the fall, blaming prospect of new tariffs for weakening demand

and continental, second largest auto supplier, cut revenue outlook twice pointing to weaker car sales in china lastly, keeping an eye on european miners, copper prices have taken a hit, also moving on china slowdown this story playing out in different assets and stocks. >> thank you taking a look at markets, we're off lows for the dow it was down 677 points earlier in the session it is still ugly still down more than 500 points. more than 2% similar for nasdaq 100 composite down 8%. s&p is down 1.6% in terms of what's outperforming, it is safe haven sectors, real estate and utilities both in the green. apple, dragging the dow lower, down 8.5%. its worst day in six years other stocks, other names with china exposure like intel, 3m,

caterpillar also selling off today. tesla shares extending yesterday's losses, down another 2% today as they missed delivery. joining us now, morgan stanley analyst adam jonas, who is cautious on not just tesla but on the entire auto space adam thanks for joining us. in terms of disappointing deliveries from tesla, how should we think about that given the fact that you have the drop in the tax credit. i think there was expectation we would see pull forward in q4, we didn't get it. how worrying is that >> well, what's worrying is that what if you did get the pull forward, right, and there were extraordinary efforts in

awareness, get your order in before midnight, new year's eve or the tax credit is cut in half that would have helped volume. in spite of that, they still missed not by a large amount, a couple percent then the discount of $2,000, and you have the first time since the company is public very con speck with us move to where you send a message that incremental demand is not as strong as incremental supply for this company. >> what's the bigger worry, price cut or the delivery mess >> both. they both hit on a product that might have achieved a high level of delivery in the fourth quarter and could drive very strong cash flow, that could be at least as high as third quarter, but the question is, is early 2019 the moment you see the difference between what is achievable and sustainable

what's sustainable is not as high 400 basis points of margin lower than consensus for the 2019 forecast. >> we're focused on china now, given the guidance from apple. is this something that will play out in tesla's earnings as well? >> not just tesla. we think that the apple profit warning should send a message to all investors involved in global autos. the thing that apple and the auto industry hasn't commented is china is a massive market for them, it is one-third of global auto demand, one-third or more of global auto supply. it created tightness in supply and demand for the last decade or so, and one of the contributing factors that will make the runup to the detroit auto show in a couple weeks sobering we think the detroit show will be an all you can eat buffet of profit warnings from suppliers and oems alike, focused on dh n

china. >> is it just china? in apple's commentary, seemed there was sensitivity to pricing in other developed markets as well i don't know if that reads into auto sector or is the focus china? >> sure it does. china is the tip of the speer. you talk about auto industry is the quintessential global supply chain. any brupinterruption of trade is magnified in auto. we think there seems to be an auto corporate referendum to the administration, hey, look, thanks for some of the represent you have been trying to do, tax cuts, et cetera, but other stuff may have gone too far, it is hurting our business you're poking some of our biggest trade partners, it is hurting the supply chain, and while we're at it, message to the fed, might be the first year in nine years that global auto production doesn't grow. we want to keep raising rates. i know that's priced in as

neutral, but the auto industry may use detroit to send messages to auto credit powers. keep the taps open or get ready for major slow down of the base that supported the administration >> adam, we're getting auto sales in the u.s. and north america as well today. are these drops as expected or are we seeing more pain in this market as well >> december, the comp. was very difficult. the december selling rate looks like it is in the low 17 millions, pretty strong. the worry is this industry for 2019 for the first time in a decade doesn't grow. and when you go x growth, stall speed in global autos, that's when you can't price, incentives rise faster than production, costs of doing business go up, you can't pass it through. costs of funds, acquiring things by credit becomes harder and we see risk to numbers.

we have a note that consensus we think is too high. it still has auto margins growing into a stall speed year. we are saying get the numbers down we think the next couple weeks is the perfect opportunity for the auto companies in unison, a lot of sympathy, including from apple, saying get these numbers down that needs to happen before the sector can start working again. >> specifically on the u.s., you are sounding negative. are autos ka narrow in the coal mine for the broader economy or is there something structurally going on where americans aren't buying as many autos you mention it should be a message to the fed and everyone else, to china it is unclear how much is macro and auto industry specific. >> the automobile, second biggest purchase outside your home 90, 95% are bought through loan and lease. employs millions of workers,

dealers, suppliers, auto factories. one in seven to one in ten jobs in the united states are related first or second degree to the auto industry. listen, i'm not speaking on behalf of the broader economy, but if you extrapolate the comments and look at correlations between inter trades and auto employment and the broader economy, there are correlations you can do your own extrapolation on that. i'm not going to disagree. >> adam jonas, thank you all you can eat buffet of profit warnings coming from detroit. all right. the dow is plunging more than 670 points earlier in the session, we're well off the lows, down 366 now apple, weak manufacturing data weighing on broader markets. let's bring in commentator mike santoli. another few hundred point swing. but the news pileup today has been concerning. >> it has.

so the market had to absorb a lot of very negative front and center news about things the market is worried about for months it is a kind of confirmation of some negatives that we have been fixated on not to make too much of the bounce off lows, but the market is trying for the second day in a row to take one of the morning losses and grind higher. there's more stocks up than down, banks are outperforming. you have to watch it we have huge financial news day tomorrow with powell i think the market wants to be in a neutral zone before that happens. i agree. you've got this theme of weakening global demand, flattening curve, and risk to earnings estimates are running throughout the s&p 500 in the broader markets. the big push/pull is we have come down 15% in the s&p, 30% in apple before yesterday, you have confirmation of numbers coming down apple had more to go down, 10%,

whatever it is does the rest of the market have to go down in a commensurate way. i don't know if we know that answer i think it is specific to different sectors. that's what the market is clenched up for. >> what about kevin hasset's comments does the market get excited about that or depressed? it seems like the hit apple is taking in china, the trump administration is seeing that as confirmation that they've got leverage and can win this thing. >> yes i think that that pokes at another worry of investors which is that this is a war of attrition between the u.s. and china, it is a leverage game or a sense of this is confirmation of what we expected to happen if you're the administration, plus that and the president's tweets about kind of once again saying we're getting billions from tariffs and seeming to cast that in a positive light. it doesn't help. but i think we're focused on numbers themselves and right

now, right ahead of us beyond the fed will be that earnings season it will be one of those good tests of what's in the price already and what's not, based on what earnings look like for the coming year. >> another piece of bad news came out today, you can see it in transports down 2%. that's the fact that delta cut guidance less than three weeks after investor day, in which it sold off after disappointing guidance i wonder how much more of this we get, whether this is the tip of the iceberg, and when you see something like ism manufacturing number come in so much weaker than expected, whether everybody is still too optimistic at this point. >> i think the suddenness of a lot of the guide downs is what's jarring now. to your point on delta, apple we have been talking about, they didn't have a lot of visibility in terms of what was happening the next couple of months, it is an issue the ism, it is a good number, a

reliable number in the sense of telling you the direction of manufacturing activity it is a survey, but i think that you have to keep that in mind. surveys matter when you talk about purchasing managers and if you're in that kind of spiral where people will be pulling investments and expectations. >> where are you standing on the question that investors are asking about whether apple represents something apple specific in china or represents something more problematic for corporate america in china in terms of visibility and impact, given nike says there's no impact a lot of other consumer companies, staples, not discretionary, say not a dramatic drop off, but fedex mentioned weakness how big a deal is this >> i guess i would say apple seems like it is a magnified version of challenges many companies may have in china,

mostly because obviously they're being aggressive on pricing as we have been talking about for that market in iphones, and also because at the moment where they were in product cycle and growth trajectory, they were relying on hardware sales in china for a big slug of incremental growth not all companies are in that boat, selling a big ticket product in a market that is to some degree or another not receptive to it, hostile to it i think there are shadings of all of this, but you can't deny that the overall china slowdown story, apple in particular seems to be a little more vulnerable along some of those fronts. >> well put, as usual. mike santoli see you later. speaking of apple, that's a major story this morning dragging on the dow, biggest loser there, biggest loser on the nasdaq 100, on pace for the worst daily performance in five years after cutting its holiday

revenue expectation based on weaker than expected iphone sales in that period in china. let's bring in walter isaacson good morning >> good morning. >> my question, walter, is what apple does from here you know the company and its culture and its habits i wonder during a rough time like this, tim cook alluded to this at the end of the letter to investors, what's the company going to try to do to retool and get better in 2019 >> what we've seen apple doing is trying to create much more of a services business, but you've been asking the right question, jon, throughout the day, which is is the iphone itself the sun around which the other products tend to orbit. and without that center, will

they continue to bring things into the planetary system. and i don't think that apple, they're going to i assume try to do more on atelevision service things like that, but haven't tl networks or the amazon alexas or the what google has. that creates a whole ecosystem it's pretty much been dependant on the iphone. >> and apple is a company i've cover them for long time that tries really hard in situations like this. not to be reactive they're not going to be a company that cuts prices or tries to put something out into the market that they think will be popular even though it doesn't fit with their broader strategy what do you expect them to do as far as reconsidering their portfolio of products? reconsidering their marketing approach mainly based on what they did during other downturns 10 years

ago, 15-plus years ago >> you're right that apple has always had a steady hand and tim cook is a steady hand. the real existential danger for apple is if things like the iphone start to become commodities, nerds there's not some shine or polish on the app that will makes people pay premiums for an apple product. the main thing that one would have to be is avoid becoming a commodity. people for the past few months keep saying the product line is steal. our in some ways,ing it's not a rabbit you can pull out of a hat. but you want to pull something out of the product line. that says okay, now here is a real reason you have to upgrade, buy a new apple product. the watch is doing fine. the earbuds are doing fine the iphone keeps getting better. but you really have to kick it up a notch

>> i wonder, waltder, is apple maybe drinking too much of its own brew in this sense -- when we saw the iphone initially came out it really took advantage of the 3g network. we saw the same thing with 4g now we've got 5g on the horizon, we're going to hear this year and lots of handset makers coming out with 5g phones right at the time when apple is in this battle with qualcomm, a major supplier of 5g components. could we see some of apple's product strategy road map perhaps playing out in how it deals with qualcomm, which should be a key supplier, but at this point is a key enemy? >> yeah, definitely. you can see solutions to the qualcomm problem basically a battle over intellectual property. however, i think that you need to look at a larger thing. which is how do you create

products that can't be commoditized, lower-cost producers can produce things because we are entering into a global economy, ig think, in which people are not going to be quite as willing to pay premium prices that was the large message about china this week. you know, yesterday, which was, it's not just about apple, but you know, there's been a 33% increase in chinese consumers who ended the year way up in credit card debt so you're not going to see china being an engine of spending for premium products but you're starting to see that ripple all around and frankly the stock market continues to be erratic and go down think the market for premium products is probably going to be weaker around the world.

>> walter isaacson, great insight as always. thank you. now we get to scott wopner with a look at what's coming up on the halftime. >> we're about seven minutes away here's what's coming up. we'll debate what's ahead for stocks after the ugly ism report stokes fears of a recession and the apple aftermath, the street's top-rated analyst tony saganiki after the stunning revenue cut. all at noon about six minutes away see you in just a few. i want to see whether any other traders are buying the apple dip. scott, see you again it is day 13 of the government shutdown as congress returns to work and the democrats take control of the house for the first time since 2011 our ylan mui has more.

>> the 116th session of congress is scheduled to start in five minutes and they're going to start with having elections for house speaker. nancy pelosi running unopposed, expected to take up the gavel once more. after that they're going to have a swearing in for members. a lot of pomp and circumstance they're not expected to get into the nitty-gritty of legislating until much later tonight democrats still do plan to hold the vote on their package of bills to reopen the government, but even that is just a line in the sand senate majority leader mitch mcconnell said he does not plan to bring that package up to the floor. he told reporters as he came back from the meeting at the white house yesterday that no particular progress had been made even though the lawmakers will be heading over to the white house again tomorrow to restart those talks. but, guys, we've asked so many times -- how long will the shutdown last? mcconnell said yesterday that they arebracing for negotiations to last days or perhaps even weeks

so there's your answer right there. lawmakers clearly in a frame of mind that this is going to be prolonged and protracted back over to you >> ylan, i know we've had quite a number of shutdowns even in just the past year in terms of how long, like the longest government shutdowns, i would imagine we're moving close to a record here are we >> i believe the longest one was 21 days. don't quote mow on that one. so there is, so there is precedent for this lasting even longer and part of the issue here is because this is just a partial government shutdown, obviously good news for federal workers who are on the job it doesn't create the same level of crisis situation that could spur lawmakers into action >> ylan mui, thank you for bringing us the latest sticking with d.c., a new addition to the cnbc family. our eamon javers and his wife

welcome a new baby, a beautiful little baby. >> awesome, nothing better than that >> because d.c. does not keep eamon javers busy enough >> the past year is nothing compared to what he's got ahead. shares of apple continuing to plunge this morning although well off the lows, near the highs that they've been of the session. tim cook speaking exclusively with our own josh lipton yesterday. expressed his concerns over slowing growth in china. >> as we look at what's going on in china, the, it's clear that the economy began to slow there for the second half. and what i believe to be the case is the trade tensions between the united states and china put additional pressure on their economy. and so we saw as the quarter went on, things like traffic in our retail stores. traffic in our channel partner

stores the reports of the smartphone industry contracting particularly bad in november i haven't seen the december number yet i would guess this that would not be good, either. and so that's what we've seen. >> so a rare moment, guys, when apple doesn't seem to know what's fully happening in its own ecosystem. whether you're talking about china or this replacement cycle on the iphones, largely trying to reassure investors over the past several quarters. the question, is this just a bump, bump in the road, particularly in china during this period of time, the slowdown, once they trade tensions and things work their way out, things go back to normal or is this something more fundamental with apple, where it's going to have to reconsider what it does with the iphone line-up and how it gross. >> is it going to regret putting the blame mostly on china in the u.s. trade war, is a good question the other one is, how is the

trump administration likely to take this. tim cook told josh lipton that he has aired his grievances and concerns about the trade war are they going to look at vindication that the trade war is working the chinese economy is feeling the heat and the pain. we're getting it in the data a recession there the president's economic adviser or is there going to be concern that there's going to a bigger, more harmful effect on american kep kompanys, the american stock market and the american economy, both of which are true. >> the comments from kevin haslett, the administration is leading towards the former also worth noting apple certainly the biggest to come out. u.s. company to come out and warn about slowing economic growth in china. but you did also have fedex come out recently starbucks has made comments. you had lvmh, daimler, tiffany's, so i guess we should say u.s. and european companies. >> and the broader effect on the markets. so the dow is down 400 points only because we were down more

than 670 points at the lows of the session. you had the double whammy of the apple warning and the ism manufacturing number coming in below expected these days, a few hundred-point swings is just feeling normal. >> it should be an exciting final hour of trade. >> it always is. but today especially, thank you, john we'll all be watching. that's it for "squawk alley," let's toss to the half i'm scott wopner, stocks down sharply after a new read on the economy flashes some major warning signs. is a recession closer than you think? it is 12:00 noon, this is the "halftime report." the concern out there is one and that is global economic growth. >> first, the apple fell from the tree now this >> we saw as the quarter went on, things like traffic in our retail stores. traffic in our channel partner stores the reports of the smartphone industry contracting particularly bad in november >> today, widely