US Close: Inflation everywhere, Bad Apple earnings, Amazon battles rising costs, FX

Risk appetite did not stand a chance after two behemoth tech earnings disappointments, surging employment costs, and as global bond yields rose on inflation fears.  Inflation hit a 13-year high in the eurozone, the Fed’s favorite inflation gauge continues to stay at the 30-year high level of 3.6%, US employment costs hit the hottest pace in 19 years, and energy prices remain elevated.  Despite all the mounting inflationary fears, the growth outlook for next year is still robust and that will keep investors betting on US growth exceptionalism.

US stocks pared losses after investors viewed poor earnings results and supply chain constraints from Apple and Amazon as a short-term problem and nothing that will derail their dominance as the most profitable smartphone company and world’s largest e-commerce company.

Apple/Amazon

Earnings season was humming along and then Apple and Amazon had to play ‘Grinch’.  Despite having a 47% year-over-year jump with iPhone sales, Apple missed quarterly sales for the first time since 2018 as supply issues cost them $6 billion.  Everything is getting more expensive for Amazon as they face several billion dollars of additional costs this quarter.  This will be difficult for Amazon as labor and wage pressure are expected to continue and rising transportation costs will last beyond the holiday season.

Wall Street knows that if Amazon and Apple are struggling with supply chain issues this holiday season, that smaller companies stand no chance.  Despite initially dropping around 5%, investors know this is just a minor blip for these tech-giants.

FX

The bond market clearly is showing inflationary pressures are intensifying, worrisome some investors and that is triggering a flight to the dollar.  Yesterday, the euro posted its best day in five months as ECB rate hike expectations shifted from December 2022 to October 2022.  Today’s European economic data clearly showed inflation is clearly above the ECB’s target and nothing from earnings season suggest it will ease anytime soon.  With eurozone inflation surging to 4.1%, a fresh 13-year high, the growth outlook will have to be downgraded.

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