Economics

Apple Warns About Sales Due To Coronavirus & Tesla Explodes Higher

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Stocks Mixed As Apple Warns About Coronavirus

The stock market was hurt by Apple’s coronavirus related warning as the S&P 500 fell 0.29%. It’s interesting that the Nasdaq was up 2 basis points since it’s traditionally considered tech heavy. Obviously, Apple is in all major indexes except the Russell 2000.

Coronavirus’ growth rate has been falling in the past few weeks. Percentage of cases that have led to a recovery increased to 17.15% and the daily growth in cases and deaths is falling. On Tuesday, the number of deaths increased 132 to 2,004 and the number of cases increased 1,693 to 74,185. Number of new cases continues to fall, but that doesn’t mean economic activity will recovery right away. There needs to be an ‘all clear’ signal by the government to bring business back to its usual pace. As of February 16th, travel within China was still very low. We expect very weak Q1 GDP growth in China and globally. Germany will be hit hard.

Apple was the catalyst of Tuesday’s modest decline in some indices. The firm stated it doesn’t expect to meet its quarterly sales guidance of $63 to $67 billion. Mostly because of lower iPhone global supply and lower Chinese demand. The chart below shows Apple’s business in China. As you can see, in 2019, 17% of global sales were in the nation. The firm specifically stated it is “experiencing a slower return to normal conditions than we had anticipated” after the Lunar New Year. As a result, the stock fell 1.83%.

That decline is far from terrible though as it is only 2.51% off its high. It’s still up 8.63% year to date. That’s very impressive since other firms with high Chinese exposure have been falling. As you can see from the chart below, American firms with high Chinese exposure have fallen over 5% year to date, while the S&P 500 is up over 4%. It would be interesting to see how the market would be doing without the coronavirus.

Details On Tuesday’s Action (Tesla Explodes)

Russell 2000 was down 0.24% even though it has little exposure to China. VIX was up 1.15 to 14.83 as the market was down further late in the AM, before recovering a bit. Even though the S&P 500 is right near its record high, the CNN fear and greed index is at 50 which is neutral. It fell 5 points on Tuesday. 

10 year yield continued to march lower on Tuesday as it fell 2.6 basis points to 1.56%. It was dead wrong to expect a higher 10 year yield in 2020. We’ve seen the beginning signs of a manufacturing recovery, but the 10 year yield has been cratering. 2 year yield fell to 1.41% as the market is pricing in 1.8 Fed rate cuts this year. That seems like a dubious proposition given the improvement in manufacturing and the high stock market. There’s no reason to hike rates, but 2 cuts sounds like too much to me. Many see 1 cut coming.

Utilities soared again on the back of the decline in the 10 year yield as the sector was the best performer. It rose 0.79%. It’s up an astounding 9.84% year to date. This sector appears to be in a bubble. However, that’s saying the 10 year yield is unsuitably low which might not be true. There was a bubble in consumer staples stocks in the summer of 2016 when the 10 year yield hit its record low. If the 10 year yield rises, utilities will crater.

A decline in stocks wasn’t all related to Apple as the tech sector was down 0.35%. Worst sector was the financials which fell 0.89% because the yield curve is flat and rates are falling. This is a bad time to be a bank. However, it’s a great time to be Tesla as the euphoria in the stock can’t be stopped. It rose 7.3% on Tuesday to $858.4. Its record high close is $887.06. This stock is a bubble. But I think the company will have a good year as Model Y should sell well.

Wal-Mart Reports Disappointing Earnings

Wal-Mart reported weak earnings as the firm missed EPS estimates by 5 cents as they came in at $1.38. Q4 2020 revenues were $141.67 billion which missed estimates for $142.49 billion. Same store sales growth was 1.9% which missed estimates for 2.3%. Wal-Mart’s CFO stated, “The holiday season … wasn’t as good as expected due to lower sales volumes and some pressure related to associate scheduling.” It along with Target, which I thought were 2 of the few winners in brick and mortar retail, had a weaker than expected Christmas.

As you can see from the chart below, e-commerce sales growth was 35%, which sounds strong, but actually was the weakest since Q1 2019. Furthermore, the e-commerce business isn’t profitable and its growth rate is expected to fall to about 30% in 2021. Despite this weakness, the stock rose 1.48% on Tuesday. Its stock is now up 0.66% year to date. This weak report was likely priced in already.

Bernie Sanders Looks Strong

Bernie Sanders looks very strong as we head into the February 22nd Nevada caucus. On PredictIt, he has a 50% chance of winning the nomination which is his record high. His momentum in the betting market has come from recent national polls which show him up by 11%, 12%, and 7%. Furthermore, his biggest rival, Bloomberg, is in 3rd place in the average of recent polls.

On a related note, Bloomberg made the debate stage on the last day he could as all of the recent polls have him in the double digits. I’m very interested to see how Bloomberg does his first time debating. Bloomberg was ahead by 6 points in a poll of Oklahoma and was tied with Sanders in both Virginia and North Carolina. According to 538, Sanders has a 58% chance to win the most delegates, while Bloomberg is at 15%. Let’s see how this changes after the debate on Wednesday. 

The post Apple Warns About Sales Due To Coronavirus & Tesla Explodes Higher appeared first on Theo Trade.

Source: First Rebuttal

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