Stocks Decline Slightly On Thursday
Stocks probably fell on Thursday because they were overbought. S&P 500 to fall 0.3%. Besides being overbought, the negative headline that hurt stocks was the Bloomberg report. It stated that China is doubtful there will be a long term trade deal.
President Trump tried to calm the situation by tweeting, “China and the USA are working on selecting a new site for signing of Phase One of Trade Agreement, about 60% of total deal, after APEC in Chile was canceled due to unrelated circumstances. The new location will be announced soon.”
It will be interesting to see how this plays out. Markets seem to be pretty confidence the situation is headed in the right direction. Investors are interested to see if business and consumer sentiment indicators rebound if this works out. It’s scary if the market thinks the economy will recover just based on this deal. There was cyclical weakness before the trade war ratcheted up. And, there might be a recovery in 2020, but that’s not clear yet, even if there is a deal.
Detailed Look At Thursday’s Action
Nasdaq fell 0.14%. Rallies in Starbucks, Facebook, and Apple couldn’t get the index up, but it did outperform the others. Russell 2000 fell 0.66%. VIX was up 0.89 to 13.22 which is still very low. CNN fear and greed index fell 3 points to 72 which is greed. It was wrong to suggest the AAII survey would show more bulls than average in this weekly update.
Percentage of bulls fell 1.6% to 34%. That’s even with the market hitting a record high on Monday. It being below its historical average of 38% is surprisingly bullish for stocks. Percentage of bears rose 0.2% to 28.4% which is below the long term average of 30.5%. That’s not bullish, but it’s a smaller distance below the average than the bulls.
Despite the rally in Apple, the tech sector fell 0.12%. Every sector but communication services and utilities fell. 2 worst were industrials and materials which fell 1.14% and 1.1%. Communication services was up 0.27% partially because of Facebook’s rally.
Utilities rose 0.46% as treasuries rallied a bit. 10 year yield is at 1.69% and the 2 year yield is at 1.53%. Short yields fell more as the curve steepened. This caused the odds of a rate cut in December to increase from 18.7% to 22.9%. A rate cut doesn’t look likely. But it’s not impossible given the amount of time between now and then. In 40 days a lot of bad economic reports can come out.
Starbucks Meets EPS & Beats On Sales
In this article I will be reviewing Starbucks, Facebook, and Apple’s earnings because the FOMC meeting was on Wednesday, so I didn’t have room to discuss them then. Starbucks reported 70 cents in EPS which met estimates. Revenues were $6.75 billion which beat estimates for $6.68 billion.
Global same store sales growth was 5% which beat estimates for 4%. As you can see from the chart below, the comp was 3% which means the 2 year stack was 8%; that’s up from 7%. This caused the stock to rise 0.44% on a down day for the market.
Even with the economic slowdown in both China and America, both countries saw great same store sales growth of 5% and 6%. Starbucks did well in America. Mostly because of its cold drinks. And it released pumpkin cream cold brew which is its first pumpkin drink since the pumpkin spiced latte. The firm has 17.6 million active rewards members in America.
In China, Starbucks did well despite competition from Luckin Coffee. Through its partnership with Alibaba, delivery was 7% of Chinese sales. On the negative side, the firm expects 2020 non-GAAP EPS of $3 to $3.05 which was below estimates for $3.08.
Facebook’s Amazing Earnings Report
Facebook has been in the news a lot over the past few months for antitrust reasons, accusations of political bias, and because of poor treatment of independent contractors who moderate the website. Even so, the firm reported amazing earnings as users flocked to its network.
As you can see from the chart on the left, the yearly growth in the spread of daily active users to monthly active users exploded from -0.17% to 0.72%. There is stronger engagement. The chart on the right shows the spread improved everywhere, but the best areas were Asia and the rest of world.
You can see in the chart below, the ratio of daily to monthly active users increased from 65.7% to 66.3%. The firm reported $2.12 in EPS which beat estimates for $1.91. Revenues were $17.65 billion which beat estimates for $17.37 billion.
There were 1.62 billion daily active users which beat estimates by 10 million. And there were 2.45 billion monthly active users which met estimates. Average revenue per user was $7.26 which beat estimates for $7.09. Facebook stock rose 1.81% on this report.
Apple Also Beats EPS & Revenues
Latest story on Apple is the possibility of it selling hardware as a service. It can charge users monthly for new products. That’s not much different between leasing phones from carriers or taking out a loan to buy the phone. I don’t see this as a big deal. What is a big deal is Apple’s buyback as the firm spent $17.9 billion on buybacks in Q4 which was 2% of the shares outstanding. That’s up from $17 billion in the prior quarter.
The firm had $64 billion in revenues which beat estimates for $62.99 billion. EPS was $3.03 which beat estimates for $2.84. Q1 revenue guidance was solid as it was from $85.5 billion to $89.5 billion which has a slightly higher midpoint than the estimates for $86.92 billion. iPhone revenues fell 9% as they were $33.36 billion which beat estimates for $32.42 billion.
Services revenue was $12.51 billion which beat estimates for $12.15 billion. Apple stock rose 2.26% on this news. Investors probably got excited about a hardware subscription program because the firm’s subscriptions are doing so well. They grew 40% as Apple now has 450 million paid subscribers.