Take shelter

MARKETS

• U.S. markets: Stocks got crushed thanks to a noxious recipe of less-than-ideal U.S. manufacturing data, Apple's revenue forecast cut, and other signs that the global economy isn't firing on all cylinders.
• Some people are working again in D.C.: The 116th Congress is now in session, and Nancy Pelosi was elected Speaker of the House. The newly empowered Democrats are expected to challenge President Trump's policies.

STOCKS

Apple’s New Year’s Hangover Now Longest on Record

One day after Apple (-9.96%) cut its revenue guidance for its fiscal Q1, everything was topsy-turvy on Wall Street: Black was white, up was down, trains actually ran on time...

Some bleak numbers from a bleak day:

• Apple's stock dropped to $142.19 a share, down about 40% since an October peak.
• It's now the fourth largest U.S. company by market value, behind Microsoft, Amazon, and Alphabet.
• Apple's market value loss of more than $400 billion in a few months is equivalent to losing an entire Facebook (with room to spare).

But Wall Street doesn't flip out over just one company's issues

Apple's pain in China reflects global economic dynamics that every investor, corporate executive, and newsletter writer is paying attention to with laser focus. A slowdown in China is a signal to all companies with a major presence in the world's second-largest economy that more hurt is probably on the way.

So what's going on in China? There are many possible reasons for a slowdown (including consumers curbing spending)...

...but Kevin Hassett, Chairman of the White House Council of Economic Advisers, is pointing to the U.S.-China trade war. On CNN, he did his best Brew "Zoom out" impression:

• "There are a heck of a lot of U.S. companies that have a lot of sales in China that are basically going to be watching their earnings be downgraded next year until we get a deal with China."
• "If we have a successful negotiation with China, then Apple's sales and everybody else's sales will recover."

Here's the thing: The Trump administration started the trade war with the specific intention of wounding the Chinese economy (so that the Chinese government would have no choice but to give in to U.S. requests).

But with Apple's rare warning—the first time it cut revenue expectations in 16 years—we're seeing evidence that even the largest U.S. companies are exposed to the fallout.

+ A few more perspectives: China isn't the only culprit behind Apple's problems, and hedge fund manager Ray Dalio wrote that the trade war isn't even the most important aspect of the U.S.-China relationship.

PHARMA

How to Beat Your Rivals

Buy them, of course. Bristol-Myers Squibb (-13.26%) will do just that to longtime competitor Celgene (+20.69%) in a deal worth about $74 billion. Aside from a price tag that crowns it one of the biggest pharma deals ever, the acquisition will combine two of the foremost sellers in the $123 billion worldwide market for cancer drugs.

Let's run the numbers...

• The combined company will have about $37 billion in annual drug sales, complete with nine products that bring in more than $1 billion each in annual revenue.
• Bristol-Myers is buying Celgene at a 54% premium to Celgene's closing price Wednesday. It'll pony up even more if Celgene's labs deliver three new approved drugs.

There's some cause for concern, though. Celgene's leading product, blood cancer drug Revlimid, is set to lose patent protection by 2022. That's a big deal, considering Revlimid contributed $8.2 billion of Celgene's $13 billion in total sales in 2017.

But Bristol-Myers is keepin' on...It said it's more interested in Celgene's pipeline than just Revlimid. After all, the two firms' combined pipelines include six product launches in the near-term, representing $15 billion in revenue potential.

Bottom line: If the FT is right, buckle up for another huge year for pharma dealmaking.

REAL ESTATE

"Hey Look, NYC Is Becoming Super Affordable!"

—Your friend who always exaggerates everything.

She does have a point, though, because the median cost of a home in Manhattan is now less than $1 million for the first time in three years, according to a new report from Douglas Elliman Real Estate and Miller Samuel Inc. The current median price? $999,000.

What drove prices lower: Existing home inventory ballooned 17% from a year ago, while apartment sales slowed more than 3%. That means prospective buyers (who also enjoyed an average list price discount of 6.2%) have more negotiating power.

This isn't just a NYC story. A cooling real estate market throughout the U.S. has forced sellers to lower prices.

+ Get on your Citi Bike, because we're about to go...outer borough. 250,000 daily riders cheered yesterday when Gov. Andrew Cuomo announced the L train, which connects Manhattan and Brooklyn, would not shut down completely for 15 months (as was previously planned). Cuomo unveiled an arrangement to do repair work on nights and weekends...keeping the MTA's Brooklyn lifeline in service.

JOBS

A Tale of Two Jobs Reports

"It was the best of employment data, it was the worst of employment data..."

At the start of each month, two important jobs reports come out—Automatic Data Processing's national employment report (usually on Wednesday) and the Bureau of Labor Statistics' non-farm payrolls report (usually on Friday).

This week, ADP's report blew it out of the water. The private sector added 271,000 jobs in December, trouncing the 178,000 that economists predicted. So...does that mean you can bet Nana's holiday check on a strong report from the BLS today?

Not exactly. From 2012 to 2016, the difference between the number of jobs in the two reports each month was greater than 40,000 about 50% of the time, per CNBC.

How do they get different numbers? Methodology.

• The BLS uses surveys of ~150,000 businesses and government agencies, plus around 60,000 households.
• HR software and services provider ADP uses data from its own payroll files.

QUIZ

The Brew’s Weekly News Quiz

Never been shut down. More realistic than your 2019 resolutions. Shorter than our other news quizzes because it's been a short week. It's the Brew's weekly news quiz.

1. A 20-year-old became the most expensive American soccer player ever when he was bought by Chelsea FC for $73 million. What's his name?
2. Netflix said that its original film, "Bird Box," broke a record for views in the first seven days. We'll give you the eight digits that comprise that number, but not in order. You've got to unscramble them ("Price Is Right" style) to reveal how many people watched the movie: 1, 5, 3, 2, 5, 0, 7, 4.
3. What do the following companies have in common: AMD, Keurig Dr Pepper, Advance Auto Parts, TripAdvisor, and Chipotle?
4. What company am I? I announced I will be offering premium subscriptions through my own streaming service. Hardware accounted for $73.3 million of my revenue in Q3 2018. My name means "six" in Japanese, since I was the sixth company launched by founder Anthony Wood.

Answers: 1) Christian Pulisic 2) 45,037,125 3) A few of the best performing S&P 500 stocks of 2018 4) Roku

MARKETS

A GIF That Keeps on GIFing

Take all GIF receipts to @dollarsanddata and @awealthofcs.

WHAT ELSE IS BREWING

• Herb Kelleher, the legendary co-founder of Southwest Airlines, died at the age of 87.
• Delta (-8.94%) forecast lower revenue growth for Q4, news which dragged down other airline stocks, too.
• China's auto sales fell 3% in 2018...marking the country's first annual decline in about two decades. But the U.S. auto industry had a surprisingly okay year.
• Square (-8.36%) is tapping Amrita Ahuja to be its new CFO. Ahuja is currently the finance chief at Blizzard Entertainment.
• General Motors' (-4.13%) self-driving unit Cruise will work with food delivery service DoorDash to test driverless cars for meal and grocery delivery.

BREAKROOM

Friday Puzzle
Ah, the classic "nine dot" problem.

Here's what you have to do: Draw four straight lines, without picking up your pencil, such that each of the nine dots has at least one line running through it. No retracing any lines.

(Answer located at bottom of newsletter)

Breakroom Answers