There’s a lot of talk about Apple’s (AAPL) first quarter earnings report but many investors are not seeing the forest for the trees. The real issue here is potential weakness in the U.S. consumer, as I discussed in a prior writing.
While Apple is classified as a “Tech” company, it is really at its core a consumer company, and the largest consumer company in the world at that. Slowing revenue growth at Apple could be a reflection of slowing consumer growth overall.
I continue to note that the S&P Retail Index (XRT) remains weak, moving below its 200-day moving average while the S&P 500 (SPY) is still trading well above its 200-day moving average. This relative weakness is troubling as Retailers were leading for much of the Bull Market that began in March 2009.
While Apple technically “beat” on earnings, remember from my recent writing that it is the price action response and not the earnings that matter in the short-run. And the price action thus far is not a good sign. Apple’s gap down of over 7% is telling us that market participants had much higher expectations for the report than the “consensus” number would indicate. Plainly speaking, weaker iPhone sales and slowing revenue guidance caught them by surprise.
Again, this has broader implications as U.S. equity investors may similarly be caught by surprise here. Expectations coming into the year were that the U.S. economy was finally beginning to pick up steam. However, the price action in the bond market continues to suggest that this may be once again a premature assumption. Yields have consistently fallen since the start of the year (see chart below).
Overall, this backdrop continues to suggest that near-term caution is still warranted for U.S. equity investors. If the economy is indeed slowing as indicated by the price action in both Treasury bonds and the Consumer sector, this will come as shock to many and prices will need to realign.
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