Dear Reader,
Bank failures... Debt ceiling standoffs... Valuations on a cliff edge... A Federal Reserve asleep at the wheel.
This market has it all.
But Thursday's trading session largely comes down to one name.
Apple Inc. (AAPL).
Wall Street expects Apple's fiscal second-quarter earnings will come in at $1.43 per share on top of $92.1 billion in revenue.
For comparison, that revenue figure is about equal to the annual GDP of Sri Lanka.
Now - Apple is very important to the market.
In simple terms: "As Apple goes, so goes the U.S. market." I can't stress this enough.
The numbers are overwhelming; Apple accounts for about 11% of the weight of the Nasdaq 100 and about 7.2% of the weight of the S&P 500.
And it's a big component of the Dow Jones.
It's part of more than 400 exchange-traded funds.
And its market cap is bigger than all but seven countries.
You can see that the movements in Apple align and direct the performance of the broader index. Apple is up 7.3%, compared to the -1.2% return for the SPX. And it's clear that as Apple moves up and down, the SPX likes to follow.
Apple's downturns have coincided with negative shifts in momentum. Remember - we're in such a negative cycle right now. So, a report that comes in lower than expectations can take this stock - which is very crowded - much lower.
Remember - when momentum is negative - cash is your friend.
Three Things I'm Watching Today
Just 21 Days: Three weeks ago, the Fed minutes from the March FOMC meeting warned that the banking crisis could cause a "mild recession." Yesterday, Jerome Powell had the audacity to suggest that "the U.S. banking system is sound and resilient." Two hours later, shares of PacWest Bancorp (PACW) - a regional bank with ample late-stage venture capital (VC) deposits - fell by nearly 50% on concerns that it must sell to a rival. The sharks are circling this sector - and not even the regulator seems to understand the gravity of the situation. Meanwhile, First Horizon Corp. (FHN) shares plunged 50% this morning after its deal with TD Bank fell through. The Fed is still choosing to fight inflation over a banking crisis... which begs the question I asked yesterday: What actually needs to break for this central bank to shift its policy? I've hypothesized the Japan carry trade, a major private equity firm, a super-regional bank, or a major pension system. Still entertaining ideas.
Oil Under $70: Oil prices stabilized a little this morning, but crude continues to drip lower. The ongoing banking crisis doesn't help as funds continue to dump names. But remember that OPEC's voluntary cuts start to arrive this month - which could help the commodity find a floor. One of the interesting things that hangs in the balance of the debt ceiling standoff is the U.S. government's commitment to refilling the Strategic Petroleum Reserve (SPR). The government should be making an offer around these levels (perhaps in the $60 to $65 range), which would allow producers to access capital for further production while still making profits. But everything is political and stupid now... so I assume nothing will get done.
Drone Attack: In case you missed it, a drone hit the Kremlin yesterday, in what Russia has called "an assassination attempt on Vladimir Putin." (Putin wasn't even in the Kremlin at the time). The attack calls into question the state of Russian intelligence agencies and their preparedness for aerial attacks. That said, analysts are now suggesting that Russia likely staged the attack and blamed it on the West and Ukraine as justification for military escalation in the 15th month of the war. The Institute for the Study of War (ISW) notes it was "extremely unlikely" two drones "penetrated multiple layers of air defense and detonated or were shot down just over the heart of the Kremlin in a way that provided spectacular imagery caught nicely on camera." Agreed.
Cheers,
Garrett
The post Morning Update: What to Do About Apple Earnings Today appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.