800 Pound Apple. Stocks staged significant pullback yesterday on bad news. Apple had never quite regained its footing since it provided less-than-glowing forward guidance in its earnings release 2 weeks ago. In a nutshell, Apple warned that they expected the upcoming holiday season to be softer than expected and that iPhone sales are slowing… which equals: Bad. Though it got a slight boost in the post-election rip last week, the stock has been trending down since the 11/01 release (see attached chart of AAPL). The stock's strength was further compromised yesterday by an analyst report that found Apple’s suppliers have experienced 20% - 30% cuts in orders from the tech giant. Lumentum (LITE), which provides Apple with the components necessary for the iPhones face ID reported that one of its largest customer had cut orders. Who might that be? The market guessed that it was Apple. Apple sold off 5% in yesterday’s session pulling down its member indices: Dow Jones, S&P500, and the NASDAQ 100. It is a major factor in the indices with significant weighting in all three. Additionally, when Apple suffers it drags all of the techs along with it. Next up: Goldman Sachs. On Friday, reports surfaced that Goldman Sachs was being investigated by regulators in a massive money laundering scheme with Malaysian investment fund 1MDB. News of the DOJ allegation caused Goldman’s stock to tumble 7.5% in yesterday’s session (see attached chart of GS). Goldman Sachs’ fall caused additional drag on an already weak market. Finally, a Wall Street Journal Report revealed that the President was considering another round of tariffs on China. Trade fears represent a continuing concern of the market and negative news on that front is always met by selling (and vice versa). A perfect storm, which included a lack of positive corporate earnings releases (which have sustained the markets in the past few weeks), the aforementioned bad news, and a vacationing bond market for Veteran’s Day, was the cause of the selloff in equities.
From a technical perspective, the S&P500 and NASDAQ 100 both closed below key support and below their 200 day moving averages. The already besieged small cap Russell 2000 closed at session lows below an important support level at 1525 (see chart 7 in my attached daily chartbook). The Dow Jones took a beating yesterday closing below its 25457 Fibonacci line but it still remains constructive (see chart 6 in my attached daily chartbook). Crude oil, despite some verbal nudging from the Saudis was unable to post a positive day closing near session lows right on its 58.75 Fibonacci support line (see chart 11 in my attached daily chartbook). The weakness in crude also added to the weakness in equities as energy stocks suffered along with the commodity. The US dollar shot up in yesterday’s trade in response to weakness in the Eurozone resulting from the ongoing struggles between Italy and the EU. The Dollar Index, which represents the US Dollar’s performance against a basket of currencies closed at a new high yesterday (see chart 13 in my attached daily chartbook). The strengthening dollar is also viewed by some as a potential drag on the economy as a strong currency means that domestic goods are more expensive to foreign buyers. The bonds markets were closed yesterday and ten year yields will start today’s session at 3.18% down from Friday’s close of around 3.16%.
We have no major economic releases today however no fewer than 3 Fed governors will speak today giving traders an opportunity to speculate on the future path of rate hikes. We also received earnings from Home Depot and Tyson Foods amongst a few others. Home Depot beat estimates by 10.9% and Tyson by 17.0% which should be positive news to the market. Over night WHILE YOU SLEPT, a strategically released report came out that Treasury Secretary Steve Mnuchin is meeting with the Chinese second in command in preparation for the President’s meeting at the G20 summit. The meeting followed a phone call which happened on Friday. The phone call yielded no positive results, but I guess a phone call is better than a text message. The futures market traded up on the news in overnight trading. As the buoying effects of earnings releases winds down in the days ahead, the markets will be left with uncertainty leading up to the G20 summit, which unfortunately means more volatility ahead. Please call me if you have any questions.