July 27, 2016

Stocks opened higher but quickly faded (Dow & SPX flat). Biotechs and banks are higher in early trading. But consumer staples stocks are down over 1% after a weak earnings report by Coca-Cola (KO). The utilities sector is also down .5%. The energy sector isn’t faring any better as oil prices continue to slide. WTI crude is now down under $42/barrel and it’s not simply reacting to a stronger dollar, but rather to continued global oversupply. The VIX Index is up a bit to trade around 13.3 (still very low). Bonds are slightly higher on the day as yields tick lower—and remember this is a Fed announcement day. The 5- and 10-year Treasury yields are down to 1.13% and 1.54%, respectively.

Apple (AAPL) reported second-quarter results yesterday that beat Wall Street expectations. Both revenue and earnings fell year-over-year but product unit sales came in ahead of forecasts. The company sold 10 million iPads, 4.3 million Mac computers, and 40.4 million iPhones. Lower priced iPhones were especially popular, and that drove the average unit sales price (ASP) below $600 (from $660 a year ago). Investors were encouraged by the fact that services revenue shot up 19% to $6bil. And mainland China sales weren’t as bad as some expected (down about 2% constant currency this year). Finally, current quarter revenue guidance was strong. AAPL stock is up about 6.5% this morning. 

Comcast (CMCSA) also reported better than expected second-quarter earnings. Revenue rose 3% y/y and earnings fell 2% y/y. The company lost fewer cable TV subscribers than expected. They lost only 4,000 subs vs. about 69,000 in the year-ago quarter. Comcast also signed up more internet subs (220,000) than expected. Advertising revenue was flat with year-ago levels. But get this—revenue in the business services division rose 17%. The stock is up 1% in the wake of the announcement. 

Durable goods orders disappointed, falling 4.0% in June from prior month levels. That’s a terrible number but thankfully most of the weakness was confined to aircraft orders (down something like 60% m/m). Excluding aircraft and defense equipment—a common way to measure corporate capital spending—durable goods orders edged up .2% as expected. Orders have improved a bit over the last 5 months but there’s no getting around the fact that capital spending remains very weak. On a year-over-year basis, spending is down about 3.7%. 

Pending home sales (i.e. contracts signed) eked out a .3% y/y gain in June vs. economists’ consensus forecast for a much more substantial 3.0% gain. Pending sales figures have been somewhat weaker than final sales recently. This isn’t anything to worry about, but could signal “a possible flat patch for the summer,” according to Barron’s. 


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