The Report On The Current Path Of Government Is Alarming And Probably Understated

iPhone sales crater 15% in Apple's worst holiday results in a decade, and the forecast looks just as grim

-Business Insider

Apple's iPhones hit a wall. Now we know how bad it is

Cupertino's got a lot of problems to fix.

-CNET

Apple’s iPhone sales revenue fell 15 percent during holiday quarter

-The Verge

The headlines spoke of Armageddon, but the stock spoke of a potential phoenix rising out of the ashes.  Sure, financials were down from a year ago. The guidance doesn’t speak of an immediate turnaround, but we are talking about a company with $245 billion in cash. In addition, Tim Cook & Co. are sitting on a potential gold mine if they mine it correctly.

Golden Apple

• 85 million Apple News App Users
• 50 million Apple Music Subscribers
• 900 million Installed Users
• 1.4 billion Active Devices

Apple (AAPL) saw its service revenue increase from 19% to $10.9 billion. Tim Cook stated, “we’re not taking our foot off the gas.” I’m not even sure what that means, but it sounds ominous, although I’m not sure if rivals are quaking in their collective boots. The company focuses on paid services, which brings me back to thinking that management should make acquisitions rather than depended entirely on organic growth.

The stock breaks out with a close above $160. From there, it has the potential to $187.

Rotten Apple

Although I’m not a big fan of economic guidance or predictions from the Congressional Budget Office (CBO) or the International Monetary Fund (IMF), or the World Bank for that matter, the report on the current path of government is alarming and probably understated.

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For this year, the CBO expects a $900 billion deficit, which would be 4.2% of the Gross Domestic Product (GDP).

The CBO projects a 2019 deficit of about $900 billion, or a 4.2% of the GDP product. The annual change would see a deficit at 4.7% of the GDP in 2029.

The inability of both parties to get their act together will see public debt as a percentage of the GDP swell:

• 2019: $16.6 trillion or 78%
• 2029: $28.7 trillion or 93%

Let’s be honest. There is no way either party is going to do the right thing. And at this point, we can only hope there aren’t any schemes put into place, such as spending trillions of dollars on health insurance “rights” that would destroy millions of jobs and won’t deliver improved health outcomes.

Yesterday was about safety in oversold blue-chip sectors (Industrials and Materials), some of which made remarkable moves, including Whirlpool (WHR), Corning (GLW), and Xerox (XRX), while investors sold momentum names ahead of Apple’s earnings.    

Today’s Session

The market was elevated all morning, but it took off after Boeing (BA) posted an incredible earnings report with major milestones and strong guidance.

Boeing (BA)

Company surpasses $100.0 billion in annual revenue for first time ever with a monster fourth quarter.

4Q18

• Record Revenue $28.3 billion +14%
• Record Operating Income $4.2 billion
• Core Operating Margin 14.7 from 12.0
• EPS $5.48 (street $4.57)

Commercial

• Deliveries 238 from 209
• Revenue $17.3 billion +12.3%
• Operating Margin 15.6 from 11.6%

Defense

• Revenue $6.1 billion +15.1%
• Operating margin 10.9 from 10.3

Services

• Revenue $4.9 billion +28.9%
• Operating Margin 15.0 from 14.7

Guidance

• Revenue $111.5 billion Street at $106.8 billion
• Earnings per Share $20.10 Street $18.31
• Cash Flow from Operations $17.5 billion

Oshkosh Trucking (OSK)

After Paccar (PCAR) posted monster results yesterday, Oshkosh has also delivered.

The company blew away Wall Street consensus on revenue and earnings and lifted financial guidance.  Management cited several factors for the big beat:

• Positive customer sentiment
• Increase in backlog
• Strong defense segment orders

Revenue $1.8 billion estimate $1.6 billion

Earnings per share $1.61 estimate $0.96

Operating Margin surged to 8.9 from 4.7 with increases in all business segments

• Access 8.0 from 2.8
• Defense 15.3 from 13.3
• Fire & Emergency 13.5 from 11.0
• Commercial 8.4 from 3.4

Full Year Guidance

• Revenue $8.25 billion from prior $8.15 billion consensus $7.66 billion
• Earnings $7.50 from prior $7.25 consensus $6.99

I think we must consider being even more overweight in industrials considering the guidance coming from the sector.

Portfolio Approach

The ADP jobs report was posted this morning and crushed Wall Street consensus.  We’ll have details in the afternoon note.  I will say, equity futures slipped a little on the news as the Fed finishes their FOMC gathering and Jay Powell takes to the microphone.  He will be asked about no rate hikes despite a robust jobs market.