Skip to main content

Morning Update

Yesterday after the close Apple delivered a rare earnings miss, coming short on both revenue and EPS. This is only the second quarter of the past 39 in which the company missed. Apple reported EPS of $9.32 and revenue of $8.8 billion versus the analyst consensus was for EPS of $10.37 and revenue of $37.2 billion. The earnings miss was due to weakening iPhone sales: Apple sold 26 million iPhone this quarter, up 28% Y/Y but down 26% Q/Q. CEO Tim Cooke said that the company “did not detect any ‘obvious economic issue(s)’ in the US and China.” CFO Peter Oppenheimer said “Our weekly iPhone sales have been impacted by rumors and speculation regarding new products” (Wall Street Journal). Considering Apple’s earning miss is an isolated event, it is unclear whether this is a symptom of a global macroeconomic downturn or simply a shift of iPhone demand from the present to future, yet unreleased models.

Caterpillar reported strong earnings this morning, beating analysts’ expectations and guiding up for the rest of the year. EPS were up 67% to $2.54 while revenue increased 22% to $17.37 billion. Construction Industry sales increased across all global regions, with North America leading the way. Caterpillar’s raised guidance to $9.60 per share comes on the back of improving housing numbers and relative strength out of the home builder’s sector. At current market valuations Caterpillar trades at just 8.9 forwards earnings, representing a great value should Caterpillar be able to continue to insulate itself from a slowing Europe and China.

Today Western Digital will report earnings after the close. The company had a very strong report last quarter, beating analyst’s expectations and saying that disruptions from the Thai floods were finally over. The stock’s weekly options are seeing heavy trading with the most open interest in the33 calls. Despite yesterday’s broad market selloff which sent the S&P 500’s (SPY) Put/Call ratio to 1.779 Western Digital’s remained at 0.797, suggesting traders are optimistic about earnings.

Waste Management will report earnings tomorrow pre-market. The stock yields 4.37% currently, and the company has increased revenues the last four quarters. Investor’s will be looking to see if there is appreciable volume growth, as a lack of it in the past has hurt EPS growth. The company has regularly raised its dividend but only by raising its payout ratio, which is unsustainable over the long term. An increase in revenue and EPS on higher volume will reassure investors that the dividend is safe and will continue to rise.


Popular posts from this blog

FED Rate Hikes Could Cause Unintended Volatility Shock

Last week the Federal Open Market Committee surprised no one when they raised rates 0.25 basis points to increase rates to between 1% and 1.25%.  What did surprise the market, was the revelation that the FED is committed to normalize rates, even if inflation does not meet their target.  This was reiterated this week in a speech by William Dudley, President of the Federal Reserve Bank of New York, who stated he feels the FED needs to raise rates, despite low inflation, to be ready to act if the economy does slow down.
The market has been quick to respond, and nothing was hit harder by a reduction in inflation expectations than commodities.  Gold, since the announcement, is lower by 2.39%, and oil is down -3.18%.  Crude futures have broken their upward trend line and appear poised to test the previous low of $39.56.
While, oil has been under pressure all year, the S&P 500 does not seem to care, as it continues to make all-time highs.  Oil is down 23% year to date, while the S&P…

Gold and Treasuries Say “RISK OFF”, But VIX Says "RISK ON"

Today we are seeing a modest rebound in the market after yesterday’s small selloff.  Volatility remains extremely low, with the VIX hovering around 10.  It’s important for traders to recognize how low the VIX has been lately.  Since 2010, the VIX has only closed below 10 five times, and each of those five times has come in the last month.                   However, the market is not without risks right now.  Gold has rallied 6.5% since May 9th.  Treasuries have rallied, pushing rates to below 2.15.  So, the market is currently in a risk off mode while equities are in a period of historically low risk.  The VVIX (the VIX of the VIX), for its part, is not sounding the all clear signal, 87 is in the medium range for VIX volatility.  Tomorrow we have a potential market moving event with James Comey’s testimony to Congress.  The last time Comey’s name was in the news, we saw the VIX move from 10.5 to over 15 in one trading day (a 50% increase) on a day where the market was down over 2%.  …

Markets Soft without Stimulus

Markets around the world pulled back the reigns as central banks look to taper quantitative easing. Japan’s central bank decided to leave their current pace of monetary policy unchecked, which has effectively cut the Nikkei down 1.5% on the day, affecting nearly every market in-between, scaring the DJIA 165 points off the start this morning. US Treasuries have now notched the highest yield in 14 months on the 10 year note.

This morning 55,257 EEM July 35 puts were purchased by a trader for $0.29 each, costing him a large $1,602,453. This is a bearish move on the Emerging Markets ETF, with expectations that by the July expiration, the price of EEM will dip below $34.71. EEM opened today at $39.32 and if this trader was to pass the breakeven point, the ETF would have to drop by more than 11.7% within a little over a month.

EEM opened today 1.9% lower than its closing price yesterday and since the 52-week high the ETF experienced in early January, it has lowered by over 13%. While this …