Friday, November 2, 2018

Markets drift lower, dragged down by Apple's earnings report

Dow fell 24, advancers modestly ahead of decliners & NAZ sank 53 on a mediocre earnings report from Apple (AAPL) - more below.  The MLP index was off 1+ to the 251s & the REIT index added 1 to the 34s.  Junk bond funds fluctuated & Treasuries were sold.  Oil slid lower in the 63s & gold pulled back 3 to 1235.

AMJ (Alerian MLP Index tracking fund)


CL=FCrude Oil63.44
 -0.25-0.4%

GC=FGold   1,235.20
 -3.40-0.3%







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Stocks were mixed after the Labor Dept said US employers created an 250K jobs last month while wages in Oct grew 3.1%.  The Dow & the S&P 500 were up, but NAZ was lower, dragged down by Apple (AAPL), which delivered a disappointing forecast.  Before the monthly jobs report, global shares were rallying after a reported phone call between the US & Chinese raised hopes of a thaw in trade tensions.  Pres Trump is reportedly interested in reaching a trade agreement with the Chinese leader at the G20 summit in Argentina later this month & has asked key US officials to begin drafting potential terms.  AAPL, the world's most valuable company, reported record profits & revenue that exceeded estimates.  However, the forecast for the key holiday selling season fell short of some expectations & shares fell.  In Asian markets, China's Shanghai Composite ended the session up 2.7% & 3% for the week.  Hong Kong's Hang Seng Index gained 4.2%, the biggest daily percentage rise since 2011 & gained 7.2% for the week, best since Apr 2015.  Japan's Nikkei logged the biggest daily gain since Mar, finishing the day up 2.6% & gaining 5% for the week.  In Europe, London's FTSE was trading higher by 0.7%, Germany's DAX is gaining by 1.4% & France's CAC is up 1.3%.

Stocks mixed after jobs blowout, tech falls

US employers added a better-than-expected 250K jobs in Oct, soaring past expectations for an increase of 190K jobs in the last jobs report before the midterm elections & on the heels of an incredibly volatile month for the stock markets.  The unemployment rate remained at 3.7%, the lowest rate in nearly 50 years, while the labor force participation rate increased to 62.9%  from 62.7% during the month.  Average hourly earnings meanwhile rose by a nickel to $27.30 (3.1%) year-over-year, the highest it's been since the 1930s.  Analysts anticipated that unemployment would hold steady at 3.7%, a 49-year low, while forecasting the creation of 190K.  That level of job creation would have been a marked improvement over Sep, when the economy added a paltry 134K jobs.  Economists noted that while Hurricane Florence, which swept thru the Carolinas in Sep, dampened job activity in the leisure & hospitality category, Hurricane Michael had little effect on job numbers in Oct.  The jobs numbers come on the heels of a report Wed from payroll processing firm ADP, which revealed that 227K private sector jobs were added in Oct, up from 218K in Sep.  The jobs report comes after U.S. stocks were hammered throughout the month of Oct, with the tech-heavy NAZ falling 9%  over the month as weak earnings reports hurt industry leaders, raising concerns about Federal Reserve interest rate hikes, an escalating US-China trade war & impending Nov midterm elections next week.  In a tweet on today, Pres Trump touted the figure, urging Reps to vote in the elections that will decide the fate of who controls the House & Senate.

Jobs blowout with 250,000 added in October, soaring past expectations


AAPL shares fell as investors reacted to a disappointing forecast even though the tech giant topped profit & sales expectations for the qtr.  EPS was $2.91 on revenue of $62.9B, easily surpassing projections for EPS of $2.78 on revenue of $61.57B.  Both marks were quarterly records.  The average sale price of iPhones was $793 per device, beating an expected $751, suggesting that its strategy of hiking prices to offset sagging demand hasn't turned off customers.  Q1 sales guidance hampered the strong Q4 report.  The company said it expects revenue of $89-93B, falling slightly short of expectations.  “We’re thrilled to report another record-breaking quarter that caps a tremendous fiscal 2018, the year in which we shipped our 2 billionth iOS device, celebrated the 10th anniversary of the App Store and achieved the strongest revenue and earnings in Apple’s history,” CEO Tim Cook said.  “Over the past two months, we’ve delivered huge advancements for our customers through new versions of iPhone, Apple Watch, iPad and Mac as well as our four operating systems, and we enter the holiday season with our strongest lineup of products and services ever.”  Unit sales of the iPhone remained flat at roughly 47M units year-over-year.  CFO Luca Maestri said the company will stop reporting unit sales of iPhones, Macs & iPads in the future.  Q4 earnings largely excluded the sales impact of the new models, which were released near the end of the period.  Apple Services, which includes the iCloud, the App Store & Apple Music, posted quarterly revenue of $9.98B, up 17% compared to the same period one year ago.  Quarterly revenue grew 16% to $11.4B in the key Greater China segment.  Cook said the commpany is "very happy" with its performance in the region, but noted that a new regulatory structure in China has impacted operations in its App Store.  In the Americas, revenue grew 19% to $27.5B.  Cook said he is "optimistic" that the ongoing US-China trade dispute will have a positive outcome.  The stock sank 15 on the news.
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Apple shares tumble after forecast wanes


New orders for US-made goods increased more than expected in Sep, but softening business spending on equipment suggested the manufacturing sector could be slowing.  Factory goods orders rose 0.7% amid strong demand for transportation equipment, the Commerce Dept said.  Data for Aug was revised up to show factory orders surging 2.6% instead of the previously reported 2.3% increase.  The forecast called for factory orders gaining 0.5% in Sep & orders increased 8.4% on a year-on-year basis in Sep.  Worker shortages, an increasingly bitter trade war between the US & China, a strong $ & slowing global economic growth are restraining momentum in manufacturing, which accounts for about 12% of the US economy.  An Institute for Supply Management survey of manufacturers published yesterday showed a measure of new factory orders dropping to a 1½-year low in Oct.  In Sep, orders for transportation equipment increased 1.9%, reflecting a 118.7% jump in orders for defense aircraft & parts.  Transportation equipment orders soared 13.3% in Aug.  Orders for civilian aircraft & parts tumbled 17.5% in Sep.  Orders for motor vehicles rose 0.5%.  There were increases in orders for primary metals, machinery & computers & electronic products in Sep while orders for electronic equipment, appliances & components fell.  The Commerce Dept also said Sep orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans, slipped 0.1% as reported last month.  Orders for these core capital goods fell 0.2% in Aug.  Shipments of core capital goods, which are used to calculate business equipment spending in the GDP report, dipped 0.1% in Sep instead of being unchanged as reported last month.  Core capital goods shipments fell 0.1% in Aug.  Business spending on equipment stalled in Q3.

US factory orders increase more than expected in September

The economic data has been fairly good but the AAPL report was sobering for investors who are not used to hearing disappointing forecasts.  Without significant news stories today, the market should be quiet while traders are forecasting the outcome of elections next week.

Dow Jones Industrials








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