Morning Minutes 01/03/2019

Morning Minutes

Apple Sales Warning Tests Investors Resolve; Nonfarm Payrolls Preview

January 3, 2019
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Coming out of a volatile December that saw the bears run wild for the first three weeks of the month, pushing the Dow down 14.6% from November 30 to the close on December 24th; then the bulls step back in and take charge, pushing the Dow up 7.0% in the final week of the month to December 31st, January has emerged as a big test of conviction for both sides.

Yesterday, the bulls passed a big test of their resolve as the US indices finished in the green after the bulls fought off an initial wave of pressure from the bears. The Dow Industrials, for example, shrugged off a 418-point intraday loss to close up 18 points on the day.

Today it looks like the bears’ turn. After the close last night, Apple cut its sales forecast for last quarter to about $84B from the $89-$93B range, a 7.6% drop based on the midpoint of the older range. In aftermarket trading Apple shares fell 7%-8% depending on the source. Management blamed the shortfall on soft demand out of China as its economy slowed, the timing of product launches and the higher US Dollar making its products even more expensive in international markets.

So far, the reaction from investors has been negative as one may expect. US index futures have been pointing to a lower open with Dow Futures recently down about 260 points or about 1.1%. Based on the comments from Apple about overseas business conditions, one may expect US multinationals to be more vulnerable than domestically-oriented companies.

The big question for today, however, is how much bad news has already been priced in by the 20% plus declines of recent months? Apple shares, for example, had already declined 37.2% from their October high to their December low, but had rebounded 7.2% from there to yesterday’s close. Once we get past the initial knee jerk reaction, the big question is whether the bears are prepared to keep pushing the shares down below $146 to new bear trend lows or if they are exhausted and prepared to turn the floor over to bargain hunters.

As the day progresses, we may see economic news also play a role in influencing investor sentiment. Dow futures, which were down 374 points at one point this morning,  have partly recovered with much better than expected ADP payrolls (271K vs street 178K) helping to provide a boost. At 10:00 EST this morning, ISM Manufacturing PMI (street 57.9 vs previous 59.3) and US construction spending (street 0.2%) are expected.

Tomorrow brings employment reports for the US and Canada. US nonfarm payrolls are expected by the street to increase slightly to 177K from 155K. Considering today’s blowout ADP number, I think payrolls could come in higher than expected, but that this month or next could also be partly offset by the partial US government shutdown which is still ongoing. I’m thinking 225K for this month’s nonfarms. Canada employment is expected by the street to increase by 5K after a 94K surge in November. I think with the energy sector struggling, we could see a bit bigger retrenchment and am thinking a 10K loss of jobs may be possible.

SIA Wealth In The Media:

Chief Market Strategist Colin Cieszynski is scheduled to appear on BNN this afternoon at 3:00 pm EST.

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