MIXED SIGNALS ON THE ECONOMY

The major stock market averages opened slightly higher after Apple’s (AAPL) surprise earnings announcement (sell below). The Dow is currently up 39 pts and the SPX is just above flat. Not surprisingly, the tech sector is leading the way, up .8% in early trading. The defensive sectors are giving up yesterday’s gains (except, oddly, for real estate). The energy sector is down .8% on lower oil prices. WTI crude oil fell back to $63.40/barrel following a report showing higher than expected crude stockpiles. Bonds are gaining ground again today as yields tick lower. The 10-year Treasury yield is back down to 2.48%.

Apple (AAPL) posted first quarter results that topped Wall Street estimates. Growth wasn’t all that impressive; sales fell 5% from year-ago levels and earnings-per-share fell 10%. The simple fact is that analysts had become too pessimistic after last quarter’s guide-down. The iPhone business continued to struggle, down 17%. But services—which include Apple Pay, iTunes and Apple Music—grew sales 16%. For his part, CEO Tim Cook is more optimistic about China than he was three months ago. He said the Chinese government’s economic stimulus seems to be working and certainly more constructive trade talks with the US is a positive. In this he echoed recent comments from the CEOs of Goldman Sachs (GS) and Blackrock (BLK). Apple’s mainland China sales fell 22% but that’s an improvement from the prior quarter. Management raised current quarter guidance. AAPL stock is up 5.8% this morning.

CVS Health (CVS) also reported results that exceeded analysts’ consensus forecast and the stock is up 5% this morning. Total revenue rose 35% from year-ago levels (due to the Aetna acquisition). Same-store sales rose 3.8% vs. 2.6% expected. It was apparent that the pharmacy services division continued to struggle with price compression, but that’s not news to investors. The important thing is that growth and cashflow are improving. Management raised its full-year 2019 earnings guidance.

Payroll processor ADP estimates that the US economy generated 275,000 new private sector jobs in April. That figure, if it can be trusted, is far higher than economists were anticipating. ADP also upwardly revised its estimate March payroll gains to 151,000. We’ll have to wait until Friday to get corroboration from the government’s Employment Situation Report. It’s just hard to see how the economy continues to generate so many jobs when the unemployment rate is under 4% and GDP growth is stepping down from 3% to 2%.

ISM’s Manufacturing Index fell to 52.8 in April vs. 55.3 in the prior month. While any reading above 50.0 indicates businesses are still expanding, the index hasn’t been this low since late 2016. Most of the components of the report also declined, including hiring activity, new orders, and priced paid for raw materials. In addition, the exports component fell below 50 for the first time in three years. Imports also fell below 50. It does appear that global economic growth is rather weak and that the US is performing relatively better. But of course there is an ongoing debate as to whether the US might end up “importing” that weakness in the form of deflation.


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