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Can Apple Carry the Day?

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January 28, 2015

After Tuesday’s stock market crumble—the biggest drop in three weeks—the Street put plenty of pressure on Apple’s (AAPL) post-bell results. And, as reflected in the tech-heavy NASDAQ Composite’s bounce overnight and this morning, the iPhone giant delivered. In turn, NASDAQ gains puffed up the broader market in early action, although trading could be muted ahead of the afternoon readout from a Federal Reserve that’s meeting for the first time since a flurry of activity from other major central banks roiled stock, commodities and currency markets.

FIGURE 1: The S&P 500 (SPX) broke through key support near 2021 Tuesday but did close above that line. Data source: Standard & Poor’s. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Apple Helps With Heavy-Lifting. After several major multinationals fingered a strong dollar for disappointing earnings results and guidance, investors were wary that Apple could roll down the same path. It didn’t. AAPL late Tuesday reported another record for its flagship iPhone, with 74.5 million phones sold in its fiscal Q1. Profit in that period rose 38% to a record high. Short-term options pricing indicated about a 6% possible move in shares around the news but trade expanded those bounds; AAPL shares are up some 9% in pre-market action.

Holding Our Breath for the Fed. Once earnings news is digested, focus quickly turns to the Fed, scheduled to issue a statement at 2 p.m. Eastern. The stock market has likely priced in its expectations the Fed will maintain a pledge for rate-hike patience, especially as strong dollar and weak oil factors are contemplated. Without that vote of confidence today, however, volatility could ensue. Economists at Goldman Sachs (and a plenty of others) expect the first hike in short-term interest rates by September. But the discussion doesn’t end there. Ellen Zentner, economist at Morgan Stanley, said Tuesday she doesn’t expect a Fed hike until March 2016 because inflation’s downward pressure is stronger than expected.

Facebook’s Turn. Facebook (FB) headlines today’s after-hours earnings. Over the past two years, the stock is up nearly 150%, outrunning the SPX’s 37% gain. Growth in revenue, profit margins, and earnings have supported this stock run. But investors get increasingly antsy for out-performance (especially at these valuations). FactSet analyst consensus is for $0.48 per share in profit for FB’s Q4. The big question of FB remains: how are you monetizing that amazing database of information?

Good trading,

JJ Kinahan

JJ began his career in 1985 as a Chicago Board Options Exchange...

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