Jobs Numbers Don't Disappoint, Come In Well Over Estimate

It’s been a solid three sessions that brought back an element of calm, but no key resistance points have been taken out, and few are willing to say the worst is over. It could be, but there is enough anxiety that only a few would suggest the coast is clear.

Market Breadth was the best I’ve seen in a long time with 200% more advancers than decliners on both the NY Stock Exchange and the NASDAQ. Meanwhile, there was 3.3 billion in up volume versus 1.4 billion in down volume on the NYSE. The volume was even more impressive on the NASDAQ, as 2.2 billion up volume was 500% above down volume.

One issue for the market from a technical point of view is testing the low. The idea is the market has to slump back to the point where sheer panic peaked. 

Testing the Bottom:

• Dow: 24,442
• S&P 500: 2,641
• NASDAQ: 7,050

NASDAQ

All three indices will be hit from weakness in Apple (AAPL) shares after missing on key metrics, and shocking Wall Street with its decision to no longer break out unit sales for iPhones, iPads, and Mac.

Rotten Apple?

I always look at what management brags about at the top of their financial releases. Typically, it’s the most impressive aspect and key developments or milestones. Indeed, Apple focused on record revenue and earnings gains. However, Tim Cook and company also decided to highlight their service business milestone. That set the tone for a report that Wall Street initially frowned upon.

Apple shares were hit despite beating the Street on revenue of $62.9 billion and earnings of $2.91.

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Geographic Sales (billions)

• Americas: $27.5 +19%
• Europe: $15.4 +18%
• China: $11.4 +16%
• Japan: $5.2 +34%
• The Rest of Asia: $3.4 +22%

Unit Sales

• iPhone: 46.9 - Street 47.5
• iPad: 9.7 - Street 10.5
• Mac: 5.3 - Street 4.8
  • iPhone Average selling price: $793 +28.3% year-to-year
  • Wall Street estimate: $750.93

The initial move in the stock was lower as Wall Street fretted about iPhone unit sales miss. The shares were stabilizing when the CFO announced the company would no longer break out unit sales data. That sent the shares into a nose-dive. I have to say it is a troubling development, and the explanation sounded like technical double-speak.

On the high-end, revenue guidance of $93.0 billion for the current quarter is slightly higher than Wall Street consensus of $92.9 billion.

I love the fact the company has pricing power, but the caveat is it cannot come at the expense of lower volume.  In fact, that didn’t happen in the last quarter, but volume is slowing. Like Facebook, the company has a lot of compelling irons in the fire, including Cloud, but they aren’t benefiting from the so-called halo effect.

This was a solid quarter, and management always sandbags. However, it’s time for big moves other than buying back the company stock ($90 billion returned to shareholders via buybacks and dividends year-to-date).  I think the stock is a buy/hold for investors, but there is a greater sense of urgency to diversify the business in ways that leverage its current footprint.

Management pointed to foreign exchange (strong dollar), which will cost the company $2.0 billion in this quarter. Also, macroeconomic trends in emerging economies are also hurting the business.

Other Financial Releases

While Apple dominates the headlines, almost every other company that reported last night beat the Street and saw their shares pop, including Starbucks (SBUX).

Other Winners: Caesars Entertainment (CZR), Symantec Corp (SYMC), Acacia Communications (ACIA), and Arista Networks (ANET).

Losers: Universal Display Corp (OLED), Weight Watchers Int’l (WTW), and Shake Shack Inc (SHAK).

Message of the Market

Perhaps, big indices would have sold off yesterday after an early morning rally began to wane before President Trump tweeted nice things about his upcoming meeting with his Chinese counterpart. Even then, the market wasn’t popping, but there was a nice surge into the close. 

I’m loving the continued bottom fishing in Materials (XLB) names and Consumer Discretionary, which saw some profit-taking in the prior session.

S&P 500 Sector Performance

Portfolio Balance Changes

20 equally-weighted positions

Today's Session

The market took off in the pre-market around 730 am after a Bloomberg report stating President Trump had requested his staff to begin crafting a possible trade deal with China.  Of course, this was not confirmed, but nonetheless, the Dow futures moved up 322 points on news.  Then, officials said that it was not true, and futures retreated by over 100 points.

Further aiding the Dow’s move is Exxon Mobile (XOM, which released earnings that beat on the top and bottom line. Revenues came in at $76.605 billion versus $73.547 billion estimate.  EPS was $1.46 compared to estimates for $1.23.

Jobs, Jobs, Jobs

Well, the jobs number didn’t disappoint as 250,000 new jobs were added in October, which was well above the estimate of 188,000.  The unemployment rate of 3.7% was unchanged.  Average hourly wages were up 5 cents to $27.30.  On a year over year basis, it’s up 3.1%, or 83 cents, which is the highest increase since April 2009.  The labor participation rate was up 0.2 to 62.9%, but it is relatively flat on the year.  The real unemployment rate, or U6 was down 0.1 to 7.4%.  Hurricane Michael had no major impact and revisions for September (up to 134,000 from 118,000) and August (down to 270,000 from 286,000) pretty much canceled out each other.

All sectors added jobs. Highlights include:

• Healthcare +36,000
• Manufacturing +32,000 (most of the increase was from durable goods manufacturing)
• Leisure and Hospitality +42,000
• Professional and Business Services +35,000
• Construction +30,000
• Transportation and Warehousing +25,000
• Mining +5,000

As pertains to unemployment rates for major work groups:

• Adult men 3.5%
• Adult women 3.4%,
• Teenagers 11.9%
• Whites 3.3%,
• Blacks 6.2%,
• Asians 3.2%
• Hispanics 4.4%

The Dow is looking to open up about 160 points, well off earlier highs.