Apple fell after reports that it could offer rebates to customers who paid the full price for iPhone replacement batteries. The company was forced to lower the battery price to $29 from $79 in late December after apologizing for slower performance from software to manage the replacements. This relatively minor issue sank the stock, and the S&P followed.

Apple leads S&P
Source: Bloomberg

This follows the same pattern we have seen in the past week: A market leader (Daimler-Benz, Exxon Mobil, UPS, Google) reports an issue that bears on the predictability of earnings, and takes the market down with it. Today it was Apple’s turn in the barrel. Until last week, the market absorbed disappointments by individual names or sectors in stride, rising even when the FAANG stocks underperformed sharply. This is a different kind of market, in which contagion from individual stock disappointments influences the overall market. That is the definition of a high-volatility trading environment.

Here is AAPL vs. VIX:

Source: Bloomberg

There is a lot of chatter today about a stronger dollar depressing equities. That is true only indirectly: the stronger dollar is bad for bonds, as is clear from the chart below. The fall in the dollar led the 10-year down. Global buyers of US bonds like a cheaper dollar. The dollar’s new-found strength adds a bit of uncertainty to the bond market outlook. I believe that the new German coalition augurs a somewhat more dovish ECB stance, but I do not think the dollar will gain substantially as a result. There is certainly some possibility of overshoot, just as the dollar overshot on the way down due to expectations of future ECB tightening.

Dollar leads 10-yr down
Source: Bloomberg