Stocks Mixed as Apple Earnings Loom

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U.S. equities finished mixed on Monday after a rip-roaring rally driven by tech earnings on Friday. By Monday, a 3.2% decline in Apple Inc. (NASDAQ:AAPL) ahead of the company’s quarterly earnings report after the close on Tuesday weighed on the tape.

All eyes will be on iPhone sales and demand from China after a disappointing report in July. FBR Capital analysts are looking for earnings of $1.89 per share on revenues of $50.9 billion with 49 million iPhone units moved. Forward guidance will be closely watched as well, with the firm looking for around 75 million iPhones for the December quarter.

In the end, the Dow Jones Industrial Average lost 0.1%, the S&P 500 shed 0.2%, the Nasdaq Composite gained 0.1% and the Russell 2000 ended the day 0.6% lower. Treasury bonds were stronger, the dollar weakened, gold gained 0.3% and crude oil lost 1.7% to close at $43.85 a barrel.

Consumer discretionary stocks led the way with a 0.8% gain thanks to a bounce in retail, while energy stocks lagged down 2.5% on weakness in natural gas.

AK Steel Holding Corporation (NYSE:AKS) lost 12% after suffering a downgrade by Bank of America Merrill Lynch in response to a lower steel price forecast. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) lost another 5.3% on ongoing concerns about its accounting policies. Xerox Corp. (NYSE:XRX) dropped 3% after missing on most key operating metrics for the third quarter on emerging market headwinds.

On a positive note, Paypal Holdings Inc (NASDAQ:PYPL) gained 3.4% after being added to Goldman Sachs’ “conviction buy” list.

Along with the flow of earnings, investors are looking ahead to Wednesday’s Federal Reserve policy decision and Thursday’s Q3 gross domestic product growth data for clues as to the odds of a possible interest rate hike in December.

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Expectations vis-à-vis the futures market and Fed policymakers have opened up considerably, with traders not expecting rate liftoff until March 2016 at the earliest.

Fed officials, based on their September Summary of Economic Projections, are looking for at least one rate hike before the end of this year. Specifically, futures place odds of a December hike are at 37% (down from 44% last month) while 13 of 17 Fed officials indicated a 2015 rate hike back in September.

My expectation, given the Fed’s history of not delivering negative surprises to the market and of only raising rates when futures traders are ready, will be a highlighting of recent economic data disappointments (such as the September non-farm payrolls and retail sales) effectively removing the risk of a December rate hike.

That should keep the post-September market rally on track boosting stocks like Advanced Micro Devices, Inc. (NASDAQ:AMD), which is up more than 10% for Edge subscribers since being recommended on Oct. 16.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to Investorplace readers.

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