The market could be a bit quiet this morning as investors await the latest Fed decision, though no rate move is expected. Meanwhile, earnings continue to look mostly strong, including Apple’s.
Figure 1: AAPL JOLT: Shares of Apple (AAPL) got a big lift right after the close when the company reported earnings late Tuesday, as this one-day chart demonstrates. At its highs in post-market trading, the stock reached levels not seen since early November. Data Source: Nasdaq. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.
Four in a Row: April marked the fourth-consecutive month of gains for the S&P 500 Index (SPX) following December’s 9% decline. In fact, only two of the last 12 months (October and December) actually saw losses in the SPX, despite that nagging feeling you might have that the entire Q4 was a disaster. Stocks actually rose slightly in November between their October and December collapses. Now the market is roughly back to where it was at the end of last September, so those Q4 losses might feel long ago. People tend to emphasize the strong performance of cyclical stocks since the start of 2019, but looking back to the end of last summer’s rally, Utilities has actually been the top-performing sector, adding on 9% to the level it was at in late September when the SPX last reached these highs. The two follow-up sectors since then are Communication Services and Real Estate.
What Inversion? Speaking of long ago, it seems like a lot of time has passed since late March, when many analysts were warning about how the Treasury yield inversion might point toward economic weakness ahead. Since then, longer-term yields have gained some traction vs. short-term ones, often a sign of economic growth. Early this week, 10-year yields widened their lead over two-year yields to more than 20 basis points. That’s relatively low historically, but compared to a single-digit gap earlier this year, it seems like a lot.
The three-month yield, which had run up a slight lead over the 10-year at one point, now trails the 10-year by 7 basis points. That said, 10-year yields remain historically low at 2.5%, which is kind of a dichotomy when you consider that stocks are at all-time highs. High stock prices can often be accompanied by losses in the bond market, sending yields higher. This time around, the Fed’s dovish stance might be holding yields back, helped in part by weak economic growth overseas. The latest inflation data didn’t appear to give any new ammunition to anyone looking for a pullback in bonds, and might also look supportive for dividend-paying sectors that often compete with the bond market to draw in yield-seeking investors.
Foreign Affairs: We haven’t seen a lot of evidence of global growth concerns crop up in corporate earnings, and CEOs have set a positive overall tone about the global economy. In some cases, their international businesses seem to be thriving despite recent slower growth in Europe and China, These firms include Starbucks (SBUX), United Technologies (UTX), and United Parcel Services (UPS). Some other companies with major foreign footprints, including Microsoft (MSFT) and Facebook (FB), showed no signs of foreign weakness hurting their growth, MarketWatch noted.
That said a couple of major U.S. firms, namely Caterpillar (CAT) and MMM (MMM), have reported softness in their international results this earnings season. Both of those companies cited weakness in Asia-Pacific, with MMM specifically mentioning China. Also, AAPL talked about strong dollar headwinds, as mentioned above.
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