Weekly Market Update: Apple's Earnings & Fed Policy – January 2019

2019 is off to a wild start. Disappointing revenue guidance from Apple sparked fears around a general earnings slowdown, a harder than expected landing in China and recession in general. The mood swung quickly positive on Friday with a blowout jobs report and indications from Fed Chairman Powell that the central bank will be reactive to market conditions and is not on a “pre-set” path to higher rates. The dust settled with global stocks up modestly for the first few days of the year.

Weekly Returns

S&P 500: 2,532 (+1.9%)
FTSE All-World ex-US (VEU): (+2.0%)
US 10 Year Treasury Yield: 2.67% (-0.05)
Gold: $1,285 (+0.4%)
EUR/USD: $1.139 (-0.4%)

Major Events

• Monday – House Democrats said they would try to reopen government when they take control starting in 2019. Heading in to the weekend, the standoff continues.
• Monday – Russia detained a US citizen for alleged spying, raising tensions.
• Monday – Global equities posted modest gains but finished 2018 with the worst yearly returns since the financial crisis.
• Wednesday – Tesla cut prices across its lineup by $2,000. Shares fell.
• Thursday – Bristol-Myers Squibb agreed to acquire Celgene for $74 billion.
• Thursday – Nancy Pelosi was elected Speaker of the House.
• Thursday – Apple said revenues would be lighter than expected, citing China as the primary source of weakness. Shares and markets overall fell.
• Friday – The US added 312,000 jobs, well ahead of expectations, signaling the economy remains strong. Official unemployment ticked up to 3.9% as more people entered the labor force.
• Friday – Fed Chairman Powell said policy is flexible, implying rates may not increase as quickly as previously indicated.

Our Take

Stock prices continue to fluctuate wildly as investors try to assess the chances of recession arriving in 2019. Things seemed bleak on Thursday when a manufacturing number fell short of expectations and Apple announced its most serious revenue miss in years. All seemed forgotten by Friday as trade talk developments, a strong jobs report and dovish talk from the Fed combined to inspire buying.

Apple is of course a bellwether for the US market, and probably the favorite single stock of retail investors. But the real question was if Apple’s comments in China indicate a sharper than expected slowdown in the world’s second largest economy. It is difficult to tell if the issue lies with the company or the country. We would not be surprised if the trade conflict has tarnished the fashion status of owning an iPhone in China – either as a result of consumer views or direct government intervention. So it may be premature to draw a direct connection between one product and a $12 trillion economy.

Back home, a huge jobs report showed the US economy is still plowing forward. Jobs reports are more indicative of the present than the future, so all is not clear but the dour sentiment building early in the week seems to have been overblown.
Over the last few weeks, schizophrenic markets have made trading the daily trends about the worst thing to do. Things aren’t all good, or all bad. It seems 2019 will not be dull. Happy New Year!