US Close – Apple Delivered, Fed Preview, Oil rallies, Gold’s rally stalls

Apple delivered.  Apple’s comeback for Tim Cook is complete.  Apple has steady revenue growth across the board and more importantly optimism on a wide range of products.  It might be a stretch to say this is a comeback, but it was not too long ago Apple was losing significant smartphone market share and had nothing but critics bashing their wearables.  This comeback is different than Apple’s first comeback in 1997 when Steve Jobs had to restructure their company’s product line. Apple is king and they are not giving up the crown anytime soon.

If Matt Damon’s South Boston character in Good Will Hunting was covering today’s earnings report, he would probably say…

Do you like strong earnings beats? How do you like them Apples.

Apple Q1 Results

Bravo Apple.  Apple posted a record revenue and delivered better than expected guidance for the second quarter.  Shares are initially soared over 4% after delivering strong beats on EPS, total revenue, iPhone revenue, wearables revenue, products revenue and most importantly strong revenue guidance of $63-67 billion, better than the estimate range of $57-65.7 billion. 

Apple’s results show they have successfully diversified their revenue from just relying on iPhone growth.  Wall Street was somewhat surprised that the guidance was so high even with everything that is going on in China.  The coronavirus may cause a supply disruption for a couple quarters, but it seems Apple is confident it will not derail their low-cost phone which could come as early as March and the iPhone 12 later in the year. 

Asia is likely to see strong momentum following Apple’s strong results.

Fed Preview

Fed policy seems set to be on preset course even after risks to the outlook saw the US almost enter into a war with Iran and as China gets impaired by the coronavirus. This is possibly the easiest Fed policy decision for Powell as officials will unanimously vote to keep policy unchanged. The policy voters for 2020 will be slightly more dovish as the two hawkish members, Esther George and Eric Rosengren are out.

Last year, the bond market was screaming for the Fed to cut rates and eventually they listened. Since the December meeting we have seen the 10-year Treasury yield fall from 1.80% to 1.60%, now in the middle of the target range. The data in the US has been mixed as business spending has softened while the US consumer still looks strong. The phase-one trade deal has not really delivered a bump in the data.

A material reassessment of the outlook is unlikely to take place here as it is too early to assess the situation with the coronavirus, even though all signs are pointing that it could have a very short-term impact on the global outlook. The Fed could deliver a small adjustment to the IOER, but that would be mainly considered housekeeping of the effective fed funds rate.

The press conference will be the main event as investors will look for signs on how they will temper balance sheet growth. The Fed has signaled temporary repo operations will last until the second quarter.  This Fed meeting could leave a funny taste for investors as expectations will grow for a drawn-out end of QE lite and that the next policy move could be a rate cut. While inflation expectations may have ticked higher since the last meeting, deflationary pressures and global growth uncertainties will keep the Fed ready to act.

Oil

Oil’s bloodbath appears to be over for now.  China’s coronavirus fears have somewhat eased and a 4.3 million barrel drop with the American Petroleum Institute data provided a boost for energy prices.  Oil prices are recovering, and we could see this rebound continue as supply risks remain in Libya and as US production shows signs of slowing down.  If the EIA report posts a surprise draw, West Texas Intermediate crude could recapture the $55 barrel level. 

Gold

Gold prices are falling as stocks shake off coronavirus concerns and after Apple delivered outstanding results that will help  US markets resume the climb back to record territory.  Gold was ripe for profit-taking after failing to break above the $1,600 an ounce level.  Improving sentiment on virus concerns and a broad risk-on rally for Apple’s suppliers will keep demand low for safe-havens.  If Asia can keep the momentum going, gold prices could see downward pressure target the $1,540 an ounce level.    

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