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Wednesday, July 27, 2016
Higher markets on Apple and Boeing earnings
Dow rose 23, advancers over decliners almost 3-2 & NAZ added 26. The MLP index went up 1+ to 320 & the REIT index lost 2+ to the 369s. Junk bond funds were down a tad & Treasuries advanced. Oil rebounded a little & gold was also higher.
Orders for business equipment rose in Jun for the first time in 3 months, eking out a small gain that shows companies are in no rush
to significantly ramp up investment, according to the Commerce Dept. Orders for
non-military capital goods excluding aircraft, a proxy for future
business investment, rose 0.2% after falling 0.5% in May. Shipments
of such business equipment, used in calculating GDP,
dropped 0.4% after a 0.5% decrease. Total
bookings for durable goods, meant to last at least 3 years, slumped 4% (forecast was for 1.4% drop), most since
Aug 2014
While
demand for business investment stabilized, bigger gains will be needed
to jump-start an economy that's been dependent on consumers. Signs of
more stability in overseas markets would go a long way in helping to
convince companies that demand remains healthy enough to justify more
equipment spending. What's more, inventories of durable goods fell for a 6th straight month, which may prompt some economists to lower Q2 growth forecasts.
Apple, a Dow stock, lower-cost iPhone SE is gaining more traction than
expected with users, tempering a sales decline& soothing
concerns about growth. The shares rose the most in 18 months. The $399 handset proved to be a bright spot in the company's earnings report. Though the company forecast sales would fall for a 3rd
consecutive qtr, the $45.5-47.5B range for the
current period was better than most expected. The revenue
decline in the 3 months that ended in Jun was also smaller than
projected, in part thanks to consumers embracing the new phone model. AAPL, which gets more than ½ its revenue from the
iPhone, has felt the impact of a cooling global smartphone market
particularly keenly. “The
customer demand for our products was significantly stronger than we had
anticipated at the beginning of the quarter,” CFO
Luca Maestri said. “We were not able to fulfill iPhone
SE demand throughout the quarter. We have now been able to put in enough
capacity to provide sufficient supply for the next quarter.” The
risk is that propping up revenue with the cheaper handset comes at the
expense of unparalleled smartphone profit margins. The average
price for iPhones in the recent period fell to $595, from $660 a year
earlier, reflecting the rise in popularity of the less expensive device.
Gross margin in Q4 will be 37.5-38%
of revenue, narrower than the 38.3% that had predicted & smaller than the 39.9% margin of the year-earlier
qtr. Challenges in China have driven much
of the revenue decline in the past year as revenue from greater China
dropped by a 1/3 as AAPL lost market share to
local competitors offering much cheaper devices with growing
capabilities. The stock jumped up 7.31. If you would like to learn more about AAPL, click on this link: club.ino.com/trend/analysis/stock/AAPL?a_aid=CD3289&a_bid=6ae5b6f7
Boeing, another Dow stock, pocketed a cash bounty from rising jetliner deliveries
despite reporting its first quarterly loss in almost 7 years after a
$2.1B post-tax accounting cost. Free cash flow in Q2 was $2.56B, about $500M more than anticipated. The planemaker posted a loss of 44¢ a share excluding
some pension costs as it absorbed the previously announced accounting
charge. The quarterly
shortfall was smaller than the deficit of 94¢
expected. Investors shook off its first loss since 2009 & were heartened
there wasn't additional bad news lurking in the earnings report after
last week’s announcement of writedowns tied to 3 aircraft programs
with well known stumbles. BA also reported a decline in the
Dreamliner's deferred production costs, in a step toward reaping more
cash from its priciest aircraft-development program ever. While charges will dent
full-year profit, the hit was less than expected.
The company lowered its profit forecast by 2.05 a share to 6.10-6.30 a share. That compares with an analyst estimate for EPS of 5.36. Deferred
production costs for the 787 fell 3.4% to $27.7B from Q1. BA had said the figure, which measures funds already
poured into inventory & labor against improvements in factory
efficiency, would plateau this year as it sped Dreamliner output. The stock jumped up 3.66. If you would like to learn more about BA, click on this link: club.ino.com/trend/analysis/stock/BA?a_aid=CD3289&a_bid=6ae5b6f7
Stocks are up on earnings, although the stories are not all that pretty. Optimism has more to do with beating lowered expectations. Lower oil prices attracted buying, but that rally seems to be over with higher production getting more attention. Stocks were strong at the opening, since then they been fading.
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