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Apple today is keeping the bear market away; Fed and Facebook next

CMC Markets

Apple today is keeping the bear market away. A multitude of disappointing earnings and weak economic data hurt US markets yesterday but Apple has come to the rescue on Wednesday. Apple announced the biggest corporate quarterly profit ever made which is setting up US markets particularly the Nasdaq for a higher open ahead of the latest Federal Reserve meeting. The weak December durable goods report on Tuesday following on from a poor retail sales number has raised some concerns over the strength of the US economy and its ability to insulate itself against a global slowdown. The drastic fall in oil prices is not only deflationary but is also reducing the contribution to growth and employment from the shale oil industry which is now facing a big capex cutback. If the Fed demonstrates concern over slowing global growth or inflation in its statement that will be taken as dovish and although it derails the market’s transition from Fed support to economic growth will probably be seen as positive by markets, at least initially. Apple results beat even the highest of company or analyst expectations as the new iPhone 6 and iPhone 6 plus smartphones flew off the shelves with the company selling 74.5 million iPhones in the quarter. IPad sales declined but that is in part thanks to the popularity of the iPhone 6 plus moving into the phablet space that had been dominated by Android phones made by the likes of Samsung. A multitude of new product lines were announced by CEO Tim Cook at the start of the quarter including the new Mac computer, Apple Pay as well as the Apple Watch which will start shipping in April setting up for a strong first quarter of 2015. Yahoo! shares are also set to move higher on the open after the company announced plans to spin-off its 15% remaining stake in Alibaba into a separate company to avoid paying US capital gains taxes. Yahoo beat EPS estimates but just missed on revenues. Once Alibaba is done with, the spotlight will be on CEO Marissa Mayer to deliver the long awaited turnaround in the core Yahoo! business. A day after the social networking site went dark for 50 minutes, Facebook is reporting after Wednesday’s close. Facebook knocked earnings out of the park in the third quarter but shares are currently sitting around 3% lower, in large part because of guidance of costs being 50-70% higher in 2015. Investor nervousness over rising costs will need to be calmed by increasing advertising revenue, particularly from mobile. Consensus is for mobile to make up 67% of the $3.49bn total ad revenue, so anything above $2.45bn in mobile ad revenue should be bullish for the stock. The worry which Facebook have largely quashed in recent quarters is that it eventually becomes another ‘MySpace’ to the next thing in social networking. To monitor whether users are starting to tire of the site investors monitor the “engagement rate” (daily active users DAUs / monthly active users MAUs). The engagement ratio in Q3 was 64%, Q4 needs to match or exceed this to show the Facebook is still as popular as ever. Earnings are expected on Wednesday from Boeing, Qualcomm, Biogen and Las Vegas Sands Futures suggest the: S&P 500 will open 10 points higher at 2,039 with the Dow Jones expected to open 48 points higher at 17,435 and the Nasdaq 57 points higher at 4,222. CMC Markets is an execution only provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.