Apple Tech - Stocks Rally Again On Thursday
Apple Tech - It's wrong to suggest the correction isn’t almost over as the market has been up every day this week, following a week where it was down every day.
The S&P 500 is less than 10 points away from its all time closing high. It’s now up 9 basis points in September which is rare as this is the worst month of the year.
Because stocks didn’t continue their correction, the market is overbought again as the CNN Fear and Greed indicator is at 72 out of 100. That’s a bearish signal which is why I remain bearish on the near term even though I have been wrong.
Kroger was the biggest loser on the day in the S&P 500 as it fell 9.9% on weak same store sales growth. EPS actually beat estimates by 3 cents, coming in at 41 cents.
Total sales were up only 1% to $27.9 billion which missed estimates by $100 million. Same store sales growth was 1.6% instead of 1.9%. The biggest worry for shareholders is how the company will compete with Amazon which owns Whole Foods.
Apple Tech - Leads The Market Higher
The Nasdaq was up 0.75% and the tech sector within the S&P 500 was up 1.17%. Even with that rally, Facebook stock fell 0.4%. I think it’s a steal at these prices.
That being said, it could challenge the low in March which was $152.22. The Russell 2000 fell 8 basis points and the VIX decreased 5.86% to 12.37.
Apple stock was up 2.42% to $226.41 which is less than 2 points away from its record high. While I wouldn’t chase the stock, I understand why it is up.
Consumers will flock to the iPhone XS and iPhone XS Max which means Apple’s average selling price will increase further. I have a healthy skepticism for how long Apple can keep raising prices, but it has worked so far.
The Apple Watch isn’t the next iPhone, but it doesn’t need to be if Apple will keep raising prices to grow earnings. Skyworks Solutions stock was up 3.37% on the back of optimism about Apple since it sells components to Apple.
The best sectors were healthcare and tech which were up 1.14% and 1.15%. The worst sectors were the financials and consumer staples which fell 0.15% and 0.36%.
The 10 year yield was flat at 2.97% and the 2 year yield fell one basis point to 2.75%. The difference between them is now 22 basis points. Even with the weakness in the latest inflation data, the Fed is still going full steam ahead with rate hikes.
There’s now an 80% chance of 2 more rate hikes this year. The Fed is not dependent on inflation. It will raise rates if growth accelerates even if inflation falls.
This means we will get closer to positive real rates in the next few months. There is now a 40% chance of at least two hikes in 2019 as you can see from the chart above.
Apple Tech - Fed Beige Book
In the Beige Book report, which was released Wednesday, the Fed said economic growth is moderate and the labor market is tight.
That’s right in line with GDP growth expectations which are near 3% and the JOLTS report which shows there are more job openings than people looking for a job.
All 12 Fed districts said there were widespread labor shortages and 6 said the labor shortages are hurting sales and delaying projects. You can see why the Fed is raising rates in this situation. Overall inflation isn’t a problem, but nominal wage growth should accelerate.
The tightness in the labor market is the strongest in low skilled areas.
Apple Tech - The Fed said wage growth is modest and employers are using flexible work hours and vacation time to keep workers.
It’s fair to say wage growth is modest in relation to the unemployment rate and jobless claims because the previous correlation implies it would be much higher. I expect that correlation to gain strength as the slack dwindles.
The Fed said businesses are scaling back capital investment because of trade uncertainty. It’s tough to see this in the overall numbers because they have been strong.
The impact will be clear if President Trump implements his threatened tariff on $200 billion worth of Chinese imports. The Fed said prices are rising at a modest to moderate pace because of the tariffs.
We saw that in metals prices in the PPI report, but the overall index decelerated which isn’t consistent with the Fed’s perspective. All districts said they saw widespread increases in input prices. This also goes against the PPI report.
The Fed said efforts to pass on price hikes to the consumer are increasing, but that differs from the weak CPI report.
The Fed said consumer spending is growing at a modest pace which differs widely from the Redbook report which recently hit a 13 year high.
Finally, the Fed said home sales are somewhat softer because of lower demand and lower inventory. This is the weakest part of the economy in my opinion.
Apple Tech - Hurricane Florence Makes Landfall In North Carolina
Hurricane Florence weakened as it interacted with land. It had peak winds of 100 miles per hour on Thursday night as the eye approached North Carolina.
It will make landfall on Friday morning as a category one storm. The weakness doesn’t mean it won’t be costly because there will be parts of North Carolina which receive 40 inches of rain and coastal areas which face up to 9 feet of storm surge.
The table below lists the 15 most costly storms. Unfortunately, 3 of these occurred in 2017. The S&P 500 increased in the following 6 months after these storms 13 times with average returns of 5.5%.
Lowe’s and Home Depot stock fell 1.43% and 1.18%, while AIG and Travelers stock were up 0.67% and 1.53%.
The market is telling you the storm looks to be not as bad as feared on Wednesday.
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