Coronavirus Moved The Rate Cut Needle This Week

Tuesday was a solid rebound for the market, especially Technology-led NASDAQ, which got a big lift from Apple (AAPL) ahead of the company’s earnings release. It looks as if the market was onto something.

“…and another blowout quarter in wearables.”

-Tim Cook

Revenue: $91.8 billion versus $88.4 billion consensus

• iPhone: $55.96 billion, +7.6% year-to-year versus consensus $51.20 billion
• Mac: $7.16 billion, -3.5%
• iPad: $6.0 billion, -11.2%
• Services: $12.7 billion, +17% year-to-year versus consensus $12.8 billion
• Wearables: $10.0 billion
• Gross Margin: 38.3% from 38.0% year-to-year versus consensus 38.1%

Earnings $4.99 versus consensus $4.54

Guidance: Apple provided the following for its fiscal 2020 second quarter:

• Revenue between $63.0 billion and $67.0 billion
• Gross margin between 38.0% and 39.0 %
• Tax rate of approximately 16.5%

"During the holiday quarter, our active installed base of devices grew in each of our geographic segments and has now reached over 1.5 billion. We see this as a powerful testament to the satisfaction, engagement and loyalty of our customers — and a great driver of our growth across the board."

- Tim Cook

For years, folks talked about the Apple “halo effect” with respect to higher sales for things such as iPads, but the installed user base means revenue streams that one day could outstrip iPhones. On that note, some bears say the hardware did too well last quarter, considering current valuations; therefore, the earnings report is a bust. That kind of quibbling is mostly sour grapes. 

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Cook also mentioned Wuhan and the safety of workers, noting there is only one supplemental plant in the area, but also admitting there has been a customer slowdown in the region.

Stocks in Apple Universe Traded Higher:

• Cirrus Logic (CRUS)
• Lumentum (LITE)
• Skyworks Solutions (SWKS)
• Broadcom (AVGO)
• Taiwan Semiconductor (TSM)
• Qualcomm (QCOM)

Most companies saw shares lower after reporting earnings after the bell:

• Xilinx Inc (XLNX)
• C. H. Robinson Worldwide (CHRW)
• eBay (EBAY)
• Advanced Micro Devices (AMD)
• Starbucks (SBUX)

All sectors were higher yesterday, even as the rally faded into the close. 

The Fed Steps Up to the Plate

The coronavirus moved the rate cut needle this week, but conventional wisdom sees the rate remaining unchanged at today’s Federal Open Market Committee (FOMC) meeting.

Manufacturing Rebound?

The Richmond Fed saw a sharp increase in January, led by the largest increase in local business conditions since February 2013. New orders also improved nicely to +13 from -13.

The news from the Richmond Fed mirror trends seen in other regional Fed manufacturing releases.

Empire Fed

Philly Fed

The question-and-answer period will see Jay Powell grapple with the role of the coronavirus in Fed modeling. We are eager to hear if his business sources feel good enough after the “Phase One” signing to stop hoarding money and make investments in their businesses.

Today’s Session

Today and tomorrow are the busiest earnings days.  So far, so good, and the futures are pointing to another higher open, ahead of the Fed's policy decision this afternoon.