04 Feb Capital 19 Catch-Up
The coronavirus loomed large over Wall St last week despite a myriad of earnings reports from a host of big guns on the Dow and S&P500. Markets found it hard to quantify the risk to the US and global economies, as the number of cases increased throughout the week.
Initially, stocks fell hard on the Monday but gained almost all of it back in the next session. In the middle of the week, the World Health Organisation declared a global health emergency, which traditionally, and somewhat ironically, has been a sign for the market to start rallying again. However, with the US declaring their own public health emergency on Friday, on top of the airlines suspending all flights in and out of China, it was back into selling mode to close out the week and the month.
The falls on Friday saw January’s gains wiped out for the S&P500 and the Dow. Both finished with small losses, while the Nasdaq still managed to gain 2% for the month. If the old stock market saying “as January goes, so goes the year” comes to fruition we could have an interesting year in the offing. But I wouldn’t worry too much. Number crunchers have worked out that what the markets do in January has little bearing on what the market will do for the rest of the year. It’s just another old wives tale that’s fun to follow but isn’t backed up by the stats.
Despite concerns over the coronavirus, earnings season continued unabated. McDonald’s (MCD) bounced back from a poor showing in the last quarter to breeze past estimates. Despite declining foot traffic into its stores’ sales still increased by 5% as it ramped up its offerings in the “Chicken wars” by offering two new chicken sandwiches in the quarter. New CEO Chris Kempczinski said, “we’re committed to really updating and competing in an aggressive way in the chicken segment”. The war continues.
Tesla (TSLA) continued to punish the short-sellers with a standout fourth quarter. The electric car manufacturer beat on revenue and profit, while management announced the new Model Y CUV would start to be delivered sooner than expected and that they would exceed 500,000 total deliveries in 2020. Shares hit a new record high of $650 during the session, a jump of more than 10% for the day.
For years in the Catch-Up, we have been telling you that it’s Apple’s (AAPL) services business that is the future of the iCompany. And while that definitely still holds true, the latest quarter saw a surprise comeback for the iPhone and a new record quarterly revenue of $91.8 billion. It was also an all-time record for the services and wearables division but the talking point was all about the success of the iPhone 11 and 11 Pro. Phones that were initially seen as ones that would be skipped over for a 5G alternative in the next cycle.
A pricing strategy which cut the price of an iPhone by $50, in an attempt to draw more people into the Apple ecosystem paid massive dividends in the quarter, as iPhone sales jumped to $55.96 billion. An increase of 8% from the same quarter a year ago. It was a blowout quarter in all respects and one which took even the most conservative of analysts by surprise.
Guidance for the next quarter was a cautious one for Apple. They’re aiming for between $63 billion and $67 billion, a figure that will depend heavily on what happens in China over the next three months. The good thing for those of you who don’t hold any Apple, or who want to add to their existing portfolio, is that Apple will be one of the major victims of any market wobbles over the coronavirus.
Despite the brilliant results and the stock price bouncing on Tuesday and Wednesday, the share price was back to where it started the week by Friday. A significant discount which could get even lower if the market continues to head south. It will be a great opportunity to pick up some more shares before the situation returns to normal.
Amazon (AMZN) was the other standout for me on the earnings front. It’s outstanding result managed to buck the big selloff on Friday with an impressive 7.38% move higher, which briefly took it over the $1 trillion mark valuation mark it first reached back in 2018. Revenue grew by 21% to $87.4 billion, as they added more Prime members than ever before and subscription numbers reached 150 million.
It was a great comeback for the e-commerce giant after missing estimates in its last two earnings releases. An impressive effort from its web services division led the way, with revenue growing by 34%. It’s an ominous sign for competitors in the cloud computing and database storage sector. If Amazon manages to get itself a stranglehold it will be almost unstoppable.
Other winners included General Electric (GE) who gained more than 10% after its earnings release, and Boeing (BA) who despite suffering their first annual loss since 1997 still beat lowly expectations and gained 2%. Facebook (FB) was the highest-profile disappointment, losing more than 7% after it showed slowing growth and an increase in operating expenses. 3M (MMM), Pfizer (PFE), Harley Davidson (HOG) and Advanced Micro Devices (AMD) also had significant misses.
226 components of the S&P500 have now announced their numbers. We have seen a bit of an improvement in the last week with 70% of companies beating their expectations. The week ahead will see another slew of big names including Alphabet (GOOGL), Walt Disney (DIS), Merck (MRK), General Motors (GM), Uber (UBER), Spotify (SPOT), Twitter (TWTR), BP (BP) and Chipotle (CMG).
Also this week we will have the January non-farm payroll numbers and the ISM manufacturing data. While in Iowa the first of the Democratic presidential caucuses kick off with Bernie Sanders looking to outpoll Joe Biden to take an early lead in the battle to take on Trump in November. Sanders is from the far left and will be seen as a hindrance to markets compared to the more central leaning Biden. Every time Sanders gets a leg up in the Democratic battle it could add volatility to Wall St.
No doubt, however, that much of the talk will be on the coronavirus and its expected impact on global economies. Sectors that will be influenced by any news include airlines, travel-related stocks, gaming, technology, and retailers with a strong reliance on the Chinese consumer such as Apple, Disney, and Nike (NKE). Let’s hope things settle down a bit from here.