April 27, 2016

Stocks gapped up at the open, but quickly faded. The Dow is up 27 points and the SPX is flat. The tech sector is down more than 1% in early trading (see below), whereas energy, telecom and utilities are all up over 1%. WTI crude oil is trading slightly higher to just over $44/barrel. The last time we saw that price was November of last year. Bond prices are recovering a bit after falling for most of April. The 2-year Treasury yield is sitting at .85% and the 5-year is yielding 1.37%. I should point out that short-term traders and market bears have really been wringing their hands about this. Why—if the economy is so weak and the Fed can’t possibly raise rates—should bond yields be moving higher?   

AT&T (T) beat first quarter earnings expectations by a few pennies per share. Sales were slightly ahead of expectations as well. Customer churn came in a bit lower (1.42%) than expected. The company added 2.3 million new customers in North America. Interestingly, the company lost a net 54,000 video subscribers. The stock is up .5% this morning.

Apple (AAPL) disappointed investors with its first quarter results. Sales fell 13% y/y and earnings fell 18%. A big part of the problem is that the iPhone 6 cycle is ending and the company hasn’t yet announced the iPhone 7. In addition, the global smartphone market is slowing a bit. So this was Apple’s first year-over-year sales decline for the iPhone, which accounts for two-thirds of the company’s total revenue. China sales were down something like 25% y/y. The company’s gross profit margin dropped to 39.4% in the quarter from 40.1% in 2015. The one bright spot in the quarter was the services business, which saw a 20% jump in sales. Services is now the 2nd largest revenue driver for Apple. The stock is down 6% this morning.

We understand Comcast (CMCSA) is rumored to be discussing a potential merger with Dreamworks (DWA). At the same time, Comcast reported first quarter earnings that exceeded Wall Street forecasts. In fact, the company had its largest increase in first quarter video subscribers in nine years. So there are two takeaways. First, Comcast took market share from AT&T. Second, consumers really aren’t cutting the cable cord as quickly as Wall Street was expecting. In fact, Comcast’s new X1 video offering looks to be competing well against the online video services. The stock is up .8% at the moment.

Pending home sales (i.e. contracts signed) jumped 2.9% in March from year-ago levels. Economists were expecting a smaller gain of less than 1%. This comes after a very strong 5.0% y/y gain in February. It is about time we get some indication of a pick-up for the all-important spring sales season. 

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