Thursday, January 3, 2019

Markets tumble after Apple cuts outlook for iPhone

Dow plunged 615, decliners over advancers almost 3-1 & NAZ sank 182.  The MLP index crawled up to the 226s & the REIT index fell 7 to the 319s.  Junk bond funds inched higher & Treasuries were purchased once again, taking the yield on the 10 year Treasury down to 2.61%.  Oil was steady in the 46s & gold went up 8 to 1291.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil46.93
+0.39 +0.8%

GC=FGold   1,290.10
+6.00 +0.5%

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Stocks opened lower after tech giant Apple (AAPL), a Dow & NAZ stock, said its quarterly revennue for the crucial holiday sales season would be lower than originally anticipated.  CEO Tim Cook attributed most of the revenue drop to lower iPhone sales, China's slowing economy & trade tensions between China & the US.  The announcement hammered company shares.  Stocks fell despite a strong ADP report on private-sector employment, which showed that last month the US economy added 271K jobs, well ahead of the 178K expected.  It was the largest increase in payrolls in almost 2 years, with small businesses seeing the strongest month of job growth all year.  Moody's said that at the current pace of job growth, the nation's already low unemployment will get even lower.  In the Asian markets, China's Shanghai Composite traded flat, while AAPL suppliers in across the region came under pressure.  Hong Kong's Hang Seng ended the day down 0.3%.  Japan's Nikkei was closed for a holiday. n In Europe,  London's FTSE traded down by 0.5%, Germany's DAX fell 1.5% & France's CAC lost 1.4%.  Yesterday, US stocks ended a volatile first session of 2019 with small gains as energy companies helped boost major averages.  When the session began the Dow plunged nearly 400 points on weaker-than-expected Chinese economic data.  Investors worried that such data could get worse if a trade deal with the US isn't reached soon.  But then oil prices spiked on a report that crude exports from Saudi Arabia fell last month on lower US production.  The news came as output cuts of 1.2M barrels per day by Saudi Arabia, Russia & others come into play.  Oil, which was down as much as 2.3% earlier, surged almost 5%.  As a result, shares of oil companies, both those with heavy investments in exploration & production & those with a focus on refining & marketing, jumped.  Shares of tech & financial companies soon followed suit & for much of the PM the major averages moved in & out of positive territory.  By the session's conclusion all 3 averages finished higher.

Stocks weighed by Apple sales warning, China weakness

AAPL shares dropped over 8% after the iPhone maker warned that quarterly revenue for the crucial holiday sales season would be lower than it originally anticipated.  The Dow member is infecting the broader market & is on pace to slip to the world's 4th largest company with a market value just under $700B.  The last time the stock was in this territory was in 2010.  CEO Tim Cook delivered the bad news in a letter saying the company now expects Q1 revenue of approximately $84B, down from previous guidance of $89-93B.  Cook attributed the downtick to various factors, but said “economic deceleration” in emerging markets, especially China, was largely to blame.  “Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall to our guidance and for much more than our entire year-over-year revenue decline,” Cook added.  “In fact, categories outside of iPhone (Services, Mac, iPad, Wearables/Home/Accessories) combined to grow almost 19 percent year-over-year.”  Cook noted China’s economy “began to slow” in H2-2018, as rising trade tensions with the Trump administration exacerbated existing difficulties.  He also cited a later-than-typical release of new iPhone models, a strong $ & product supply constraints as factors in the company's revised guidance.  The company expects to end Q1 with about $130B in net cash & reiterated its goal of becoming net-cash neutral in coming qtrs.  “We can’t change macroeconomic conditions, but we are undertaking and accelerating other initiatives to improve our results,” Cook continued.  AAPL has contended with slowing demand for the iPhone, the flagship product that has acted as its primary revenue driver in recent years.  The company drew scrutiny & a negative market reaction last Nov when it disclosed that it would no longer publish the number of iPhones & other products it sells each qtr, a metric long considered a crucial bellwether for the overall health of its business. The stock dropped 15.49 (10%).
If you would like to learn more about AAPL, click on this link:

Apple cuts outlook, CEO Tim Cook blames China and iPhone sales

Private sector employment increased by 271K jobs in Dec, according to the ADP National Employment report, soaring past expectations for 178K jobs.  The better-than-expected number can be attributed to good weather last month & strong holiday hiring, despite a tumultuous month for the markets, according to Moody's chief economist Mark Zandi.  “Businesses continue to add aggressively to their payrolls despite the stock market slump and the trade war,” he said.  “Favorable December weather also helped lift the job market. At the current pace of job growth, low unemployment will get even lower.”  The service-providing sector added the most jobs, with the creation of 224K positions.  It was followed by 66K in the professional and business sector & 61K in the education & health sector.  “We wrapped up 2018 with another month of significant growth in the labor market,” said Ahu Yildirmaz, co-head of the ADP Research Institute.  “Although there were increases in most sectors, the busy holiday season greatly impacted both trade and leisure and hospitality. Small businesses also experienced their strongest month of job growth all year.”  In Nov, the US payroll increase remained unchanged at a number of 179K nonfarm jobs.  Tomorrow, the Labor Dept will release its highly anticipated Dec jobs report, which will offer an in-depth look at the labor market, including job additions, the unemployment rate, the labor participation rate & wage growth.  Analysts expect the US economy will likely add 177K jobs.

ADP job growth of 271,000 soars past expectations

General Motors (GM) tapped company veteran Mark Reuss as pres, effective immediately.  Reuss currently is in charge of the global product group as well as the Cadillac brand, & will now add the responsibility for quality organization.  The announcement was made on the same day that GM reported its vehicle sales for the qtr.  The automaker reported new vehicle sales fell 2.7% in Q4, with declines across most of its brands.  The Chevy Equinox, Chevy Traverse and the GMC Terrain saw sales increase.  GM saw sales declines for its passenger car models as consumers favor larger, more comfortable vehicles, although sales fell for some popular large vehicles such as the Chevrolet Suburban, Cadillac Escalade & GMC Yukon.  For the year, GM said sales dropped 1.6% to 2.95M vehicles.  In Nov, the automaker announced it would end production at 5 factories in the US & Canada, cutting about 15K jobs.  The stock sank 1.08.
If you would like to learn more about GM, click on this link:

General Motors taps new president as 4Q sales fall

This is another gloomy day for the stocks market, not a good way to start the new year (especially following the tough days in Dec).  The AAPL announcement should not have been a complete surprise since the company is heavily dependent on iPhone sales in China.  With a maturing iPhone market & an economy that is slowing, negative news could have been expected.  The jobs news was encouraging.  However with substantial selling in the overall market, it couldn't get any respect.  Early indications are that Jan may not be a recovery month for stocks.

Dow Jones Industrials

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