Tech Stocks Hit Ahead of Fed Decision

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U.S. equities finished mixed on Tuesday as traders look ahead to the Federal Reserve’s policy announcement Wednesday. While interest rates are almost unanimously expected to remain unchanged, watch for any change in the statement on the balance of risks to the economy. Increased confidence could signal possible action at the June meeting — something the market isn’t expecting.

The rollout of disappointing first-quarter earnings continued, with areas such as airlines and tech stocks getting hit. Both Apple Inc. (NASDAQ:AAPL) and Twitter Inc (NYSE:TWTR) were slammed after the close on disappointing results.

In the end, the Dow Jones Industrial Average gained 0.1%, the S&P 500 saw a modest 0.2% bump, the Nasdaq Composite lost 0.2% and the Russell 2000 closed out the session with a 1.1% gain. Treasury bonds were weaker, the dollar was on the defensive, gold gained 0.3% and crude oil gained 3.3% to close at $44.04 a barrel.

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Energy stocks led the way with a 1.4% gain. Purse-maker Coach Inc (NYSE:COH) gained 4.2% on better-than-expected earnings driven by flat comp-store sales versus a consensus estimate for a 1.2% decline. Healthcare and tech stocks were the laggards, down 0.4%. Whirlpool Corporation (NYSE:WHR) lost 3.6% after Q1 earnings per share missed estimates on light revenues and margin pressure.

Procter & Gamble Co (NYSE:PG) lost 2.3% to fall back to late January levels after reporting a 3% year-over-year decline in earnings to 86 cents per share (slightly ahead of estimates). Revenues fell 6.9%, missing expectations. Forward guidance was weak as well. That boosted the May $80 PG puts recommended to Edge Pro subscribers to a gain of 14%.

On the economic front, there was some bad news. The March durable goods report was weaker than expected, reflecting ongoing pressure on U.S. manufacturers, rising 0.8% month-over-month versus a 1.9% increase expected. Consumer confidence was soft as well. And the Case-Shiller home price index increased less than expected.

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Back to earnings: AAPL was down nearly 8% in after-hours trading after reporting a top- and bottom-line miss on Q1 results. Earnings came in at $1.90 per share (vs. $1.97 expected) while revenues came in at $50.6 billion (vs. $52.2 billion expected). Profitability decline, with gross margins at 39.4% vs. 40.8% last year.

The cause was a big drop in iPhone shipments to 51.2 million vs. 61.2 million last year as well as weak iPad (10.3 million vs. 12.6 million) and Mac (4.0 million vs. 4.6 million) shipments. China revenue, a recent point of concern, was weak as well at $12.5 billion vs. $16.8 billion last year and $18.4 billion last quarter.

Hype was building for the upcoming release of the iPhone 7 later this year, but with reports of only a modest update retaining the same form factor (removal of headphone jack, adding a second speaker, better camera, and bigger battery) ahead of a possible all-glass iPhone 8 next year, much of that has been deflated.

Waiting more than a year for an all-new iPhone not only gives competitors an opening to capture market share, but it keeps investors waiting for that big positive catalyst. Based on the drop in the extended session, folks simply don’t have the patience with CEO Tim Cook and his team in Cupertino.

This is great news for Edge Pro subscribers holding the May $107 AAPL puts that are now worth nearly 300% since purchased on April 18.

TWTR is down nearly 12% in extended trading after reporting better-than-expected earnings of 15 cents per share (vs. 10 cents expected), but missed on revenues of $595 million (vs. $607 million expected).

Guidance was weak as well, with management looking for Q2 adjusted operating income of between $590 and $610 million vs. $678 million expected.

Looking ahead, not only will we get a non-press conference Fed announcement, but we’ll get results from Boeing Co (NYSE:BA), Facebook Inc (NASDAQ:FB) and PayPal Holdings Inc. (NASDAQ:PYPL) among others.

According to FactSet, the overall S&P 500 earnings per share growth rate now stands at -8.8% for Q1 vs. -8.6% at the end of the quarter and well below the 0.7% expected back in January. Revenue growth is -1.3%.

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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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/tech-stocks-fed-rate-hike/.

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