Wednesday, July 24, 2013

Apple Tops Low Expectations

The market is mixed this morning with the Nasdaq outperforming the S&P on the heels of better than expected earnings from AAPL.  Expectations had gotten pretty low for AAPL given its lagging stock prices and lack of new products in recent quarters.  But the company surprised the Street by selling more iPhones than analysts expected as well as beating the earnings estimates.

The reaction in the stock was positive and today it is up by nearly 6% and helping to boost the Nasdaq.  There were a few other tech stocks that are higher after reporting as well.  Overall I am seeing more positive earnings reactions this morning than negative:

Stocks rising on earnings: AAPL. EMC, VMW, BA, LL, F, JNPR, MSA, TUP, GD, NOC, MCO, TMO

Stocks falling on earnings: CAT, T, BRCM, PNRA, STX, TROW, RLGY

In economic news, June new home sales rose more than expected to 497,000.  This was also up from the previous month's rate of 459,000,

Asian markets were mixed after China's HSBC Manuf. PMI fell to 47.7 from 48.2 last month.  It is falling deeper into contraction territory, which doesn't bode well for GDP growth accelerating in the near term.  China is struggling to hold GDP growth above the 7% rate it desires.

Europe's markets are mostly higher after PMI readings in the region were pretty solid.  The Eurozone Manuf. PMI climbed above the 50 level (to 50.1) that marks the line between expansion and contraction.  The services PMI remained in contraction at 49.6, but this is up from last month's level of 48.3.  Separately, the ECB said its bank lending survey pointed to a drop in loan demand which is expected to persist into Q3.

The 10-year yield is rising today to 2.58%.  And the VIX is higher to 13.0, which is still a pretty low level.  I wouldn't be surprised to see some market pullbacks get the VIX back to the 15 level.

Trading comment: Techs are leading the early action while energy and materials are lagging.  The tech sector has lagged for most of the year, so some rotation and outperformance from this group would not be surprising.  The market seems to be hanging in there near its recent highs despite reaching overbought levels.  For investors, this is the most bullish way to work off an overbought condition.  We could still see more of a selloff, but so far the selling pressure has been mild.

KAM Advisors has long positions in AAPL, EMC


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