Apple's earnings miss could undermine wobbly market
Even Apple wasn鈥檛 strong enough to escape the economic headwinds that are bruising corporate profits and unhinging the stock market.
Apple听fell sharply in after-hours trading Tuesday after a听. Although some of its shortfall was related to its pending iPhone 5 release, its report is likely to be a drag on the market Wednesday and take other tech stocks with it.
听鈥淥bviously, it鈥檚 big for the听. It鈥檚 20 percent of the index. Overall, it鈥檚 an important indicator with respect to the economy and sentiment in general,鈥� said Dan Greenhaus, chief global strategist at BTIG.
听Apple follows many other major companies with lower- than-expected revenues, the result of a slowing Europe and world economy, stronger dollar and more reluctant consumer. Dozens of companies report before the opening bell Wednesday, and many of them may signal the same problems.听Caterpillar,Boeing,听PepsiCo听补苍诲听Ford听are among those companies reporting in the morning, and听Visa,听Whole Foods,听Zynga听补苍诲听Akamai听report after the closing bell.
The disappointing report from Wall Street鈥檚 favorite stock also comes as Europe鈥檚 sovereign crisis has once more been hammering global markets, and U.S. economic data continues to disappoint. The Richmond Fed manufacturing survey, for instance, fell Tuesday to its lowest level since April, 2009, with a large drop in shipments and orders.
听But Apple is a favorite and it is viewed as unique among multinationals, and other consumer and tech companies. A beat by Apple and positive forecast might have helped boost the stock market.
鈥淎 big swing and a miss there,鈥� said Jack Ablin, CIO of Harris Private Bank. 鈥淭here鈥檚 two things here. This is a company that鈥檚 been routinely beating estimates and whisper numbers and everything else, and the other one is bigger than that. It鈥檚 that this is a company that鈥檚 created a brand that鈥檚 really been different, and with respect to their stock, had been different in a lot of respects, impervious to the vagaries of the global economy and the market and everything else.鈥�
Apple earned $9.32 per share in its fiscal third quarter, up from $7.79 per share last year but more than a dollar below expectations. Apple revenues rose 23 percent to $35 billion, but $2.2 billion below forecasts. Apple also disappointed on its outlook, guiding analysts to $7.65 per share for the current quarter on revenues of $34 billion, down from an estimated $10.22 per share and revenues of $38 billion.
听鈥淚t鈥檚 obviously bad news for Apple. It鈥檚 bad news for equities indices. We have to see if like other companies, this is just sort of a hiccup, or there鈥檚 something structural here --- there鈥檚 just a not a desire to replace as many iPhones. That鈥檚 sort of the question. Is this just people waiting for the iPhone 5 in the fall or is there a macro problem,鈥� said Greenhaus. 鈥溾�ow we鈥檝e seen dozens of other companies saying there鈥檚 a macro problem.鈥�
听Apple sold 26 million iPhones in the quarter, below some forecasts, but it sold 17 million iPads, better than expected. 鈥淚t鈥檚 just a disappointing iPhone number. We were looking for 29 million units. They did better on the iPad,鈥� said Gene Munster, analyst at Piper Jaffray on 鈥淐losing Bell.鈥� 鈥淲hile I got the iPhone number wrong, I think this is d茅j脿 vu to what we saw in September of last year. It鈥檚 going to be really hard to break out how much is macro related鈥nd how much is related to an iPhone 5 slowdown.鈥�
听The Apple news could not come at a worse time for market confidence. In the past week, Europe鈥檚 debt crisis has more seized control of markets, driving stocks and commodities lower, pushing shorter duration Northern European sovereign yields into negative territory while the yields of Spanish and Italian debt skyrocket. A flight-to-quality trade into the U.S. Treasury market drove yields to record lows, as fearful investors watch for signs of contagion from a Europe that doesn鈥檛 seem to have a plan to stop the flow of bad news. The 10-year was yielding a record 1.40 Tuesday.
听Markets were spooked Tuesday by reports that听, and the continuing speculation that Spain may need to seek a bailout of its sovereign. The market speculation also engulfed Italy, as it is seen as the next sovereign in line that could need help.
听鈥淪ince the financial crisis, this is the first time we鈥檝e gone into an听听that鈥檚 going to be worse. We鈥檙e not sure how to react to that with most of southern Europe melting into the Mediterranean,鈥� said Art Hogan of Lazard Capital Partners.
鈥淚 think we should be as concerned as we ever have been about the European situation,鈥� Hogan said. 鈥淚 think it鈥檚 as nerve wracking as it鈥檚 ever gotten.鈥�
听听fell sharply after the headlines on Greece, but stocks finished off their lows after a Wall Street Journal story that said the Fed is moving closer to some sort of stimulus and could consider action next week or at its meeting next month. While containing no new ideas, the article helped lift stocks as traders speculated the reporter got the story from top Fed officials. The听听finished down 104 points to 12,617. The听听was off 12 at 1338, just above an area of support, and the Nasdaq fell 27 to 2862.
听鈥淚t鈥檚 certainly going to offset the Fed,鈥� said Ablin of the Apple news. 鈥淭hey鈥檝e got their party hats and their pom poms on, and I think the Apple announcement is going to take the air out of their balloon.鈥�
听Miller Tabak strategist Peter Boockvar said investors should beware of market expectations about the Fed, which he says have been supporting stock prices. 鈥淎t the end of the day, if earnings are going to drive where stocks go, and earnings growth is slowing dramatically, it鈥檚 irrespective of what the Fed is going to try to do to keep asset prices higher,鈥� he said on 鈥淐losing Bell.鈥�
听Greenhaus said he remains cautious on stocks and expects a difficult summer. 鈥淕iven the level of uncertainty with earnings, and the concern about Greece 鈥� they need another bailout. And you have Moody鈥檚 putting a couple of triple A countries on negative watch, we鈥檙e not enthusiastic about investing. I think you鈥檙e in a dangerous moment here for investors,鈥� said Greenhaus.
听Besides earnings, Apple fallout and Europe, there is just one economic report Wednesday. New home sales are reported at 10 a.m.
听鈥淗ousing is one bright spot in the economy,鈥� said Mark Zandi, chief economist at Moody鈥檚 Economy.com. 鈥淚t鈥檚 improving. It鈥檚 steadily improving in sales, construction and now in house prices. Housing鈥檚 gone from being a hurricane in the economy to a tailwind. We need all the help we can get.鈥� As long as the job situation does not deteriorate further, Zandi said the lower rates should help boost home purchases, as rising rents are making buying more attractive.
听There is also a 1 p.m. auction of 5-year notes Wednesday, and the House Financial Services Committee will hear testimony from Treasury Secretary Timothy Geithner. Geithner is appearing to discuss banking regulation but will certainly be asked about what he knew about听听and the rigging scandal.
