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Market Update

Pre-Fed Jitters Dull Some of Apple’s Earnings Shine

April 28, 2015

Hear that? A quiet woo-hoo on Wall Street as Apple’s (AAPL) results blew past estimates. The early reaction leaves its shares on track for a record. Apple reported a 33% rise in its quarterly profit compared to a year ago, boosted by a surge in iPhone sales and solid demand in China. Apple also raised its dividend 11% and its share-repurchase program by $50 billion, to $140 billion. AAPL gains are setting up a formidable floor under most tech shares for today, but the broader market reaction is muted. Why? Macro events.

The first look at Q1 gross domestic product hits early Wednesday, a few hours ahead of the Federal Reserve’s interest-rate statement. It’s little surprise to me then that the pace of trading could slow ahead of these two releases and that broad-market trading could continue to decouple from earnings-driven individual stories, including post-bell earnings from Twitter (TWTR), GoPro (GPRO), Kraft (KRFT), and others. One measure of broader market “anxiety,” the CBOE Volatility Index (VIX) rose nearly 7% Monday and could see a little pop again today leading up to the Fed release.

FIGURE 1: VIX: STILL LOW, CREEPING HIGHER. The CBOE Volatility Index (VIX) popped higher Monday as traders positioned for short-term “anxiety” trades in the lead up to the mid-week Federal Reserve statement release. Data source: CBOE. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Fed Expected to Play it Cool. The Federal Reserve Open Market Committee (FOMC) meeting kicks off today but the interest-rate policy statement isn’t released until Wednesday afternoon at 2 p.m. Eastern. Even then, Wall Street economists generally believe the Fed will work hard to stay noncommittal in its statement language, preferring to keep all options for the launch and pace of interest rates on the table.  The Fed statement will follow the morning release of GPD. Industry economic forecasters are in near-universal agreement that the government will report a slowdown in U.S. economic growth in the "advance" GDP report for Q1 but are we talking about a tap of the brakes, or more?

Mixed Picture for Big Pharma. Pfizer (PFE) reported a slim rise in its Q1 profit versus the year-ago comparable but trimmed its full-year outlook. Still, shares were early gainers Tuesday. Rival Merck & Co. (MRK) is also gaining in early action as it raised its full-year earnings guidance despite noting the negative impact of the stronger dollar.

Twitter and More. Several more companies issue earnings later today. Count social media firm Twitter (TWTR) among those with a post-close release. Options markets reveal short-term positioning for a 10% move for TWTR shares, in either direction, surrounding the earnings release.

Good trading,

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