U.S. equities moved lower Wednesday after the much-hyped Apple (NASDAQ:AAPL) event came and went with a dull thud.
Highlights from Apple’s event included a larger (and more expensive!) new iPad Pro, incremental improvements to the iPhone 6S and the addition of Nintendo Wii-style gaming to the (finally) updated Apple TV.
Despite these, the Apple event failed to generate the buzz the bulls were looking for — confirming fears that the product innovation cycle in Cupertino has dropped off. (An Apple Pencil. Really?)
After trading up to levels not seen since late last month, AAPL shares melted embarrassingly lower during CEO Tim Cook’s presentation to end down more than 1.9%.
In the end, the Dow Jones Industrial Average lost 1.4%, the S&P 500 Index dropped 1.4%, the Nasdaq Composite shed 1.2% and the Russell 2000 stumbled 1.2%.
Netflix (NASDAQ:NFLX) rose 4.5% after a positive note from Oppenheimer noted the company’s nearly global footprint gives it a significant first-mover advantage over the competition (with AAPL reportedly thinking of getting into the content business).
The day’s slump was a surprise to many given the excitement seen in the Asian trading session with Japan’s Nikkei 225 index rising a whopping 7.7% in response to a substantial corporate tax-cut announcement. China’s Shanghai Composite gained 2.3% after the Ministry of Finance said a more powerful fiscal stimulus would be used to stimulate growth.
A rise in the U.S. dollar put the brakes on commodity prices, as gold dipped down 1.7% and West Texas Intermediate slipped another 3.9%. No surprise then that energy stocks were the laggards down 1.9%
This was driven by increased expectations regarding the Federal Reserve’s much-ballyhooed rate hike, following a stronger-than-expected July job openings and labor turnover report, which showed an increase in openings to a record high of 5.7 million vs. 5.3 million in June since the data started in 2000.
The data (shown in the chart above) speaks for itself and will make the Fed’s justification of a “no hike” decision much more difficult.
One possible strategy will be to focus on the slowdown in the hiring rate, which fell to 3.5% from June’s 3.7%, well below the high of 4.4% set in January 2001. As noted by Philippa Dunne of the Liscio Report, the job openings rate is now below the hires rate for the first time in history.
Dunne argues that the elevated hires rate reflects an “advanced case of tire-kicking around the country,” as employers and potential employees circle each other wearily to see if they can get the upper hand.
For his part, Deutsche Bank economist Joseph LaVorgna told clients he sees seven reasons why the Fed won’t hike rates this month:
- Global stock markets are fragile.
- The dollar has been strong, weighing on GDP growth via trade.
- Financial markets continue to assign a low probability of a September rate hike based on futures trading (odds stand at 30% vs. 54% last month).
- Several key Fed officials seem to be subtly backtracking a September rate hike, describing the hike using phrases such as: “less compelling,” “complicating factors” and “significant … headwinds.”
- There are meetings in October and December of which the Fed can hike rates during.
- The Fed, in its mind, doesn’t fear the loss of credibility if it waits.
- Inflation continues to be soft, with the Fed’s preferred measure up just 1.2% over the past year.
With this in mind, the recent range-bound choppiness in stocks should continue until next week, when a dovish Fed could unleash a powerful rebound through October.
Commodities — especially crude oil and gold — could be the big beneficiaries of a “no hike” decision.
Edge subscribers are set to benefit with a position in the Gold Trust SPDR (NYSEARCA:GLD) and a position in Franco-Nevada Corporation (NYSE:FNV), which is up 4.2% since recommend last month.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.
