"Patience is the companion of wisdom." -- Augustine of Hippo
Patience and Wallets, Tested
Everything had moved along nicely in Cupertino. Apple (AAPL) had already announced updates to its TV product, as well as the Apple Watch. Apple had already talked about two versions of the iPhone 8. The stock price had moved higher throughout the day. Then it happened. It? The clown in the sewer? No. Apple introduced the iPhone X. The iPhone Ex? No. The iPhone 10. Oh. What happened to the iPhone 9? Pay no attention to that man behind the curtain. High resolution facial recognition technology. Fancy. How much does it cost? It starts at $999. Herman Cain would be proud. Consumers however, may see their sensitivity to price tested. When will this dandy new phone be available? The first shipping will take place on Nov. 3, with consumers able to pre-order by late October. Hmm. So, now Apple will test the patience of their loyal customers, as well as their wallets. Remember what we said yesterday about the importance of Sept. 22?
Apple puts this circus together at this time of year, every year. The new phones normally go on sale by late September. That was all that traders needed to hear. Traders sold the shares. The stock closed lower. No fire sale mind you, just some profit taking. I remain long, but you may recall what I told you regarding that $154ish level. That's the spot where I expect to dig in.
Now, regarding Action Alerts PLUS charity portfolio holding AAPL... the watch did seem interesting, didn't it? Don't get me wrong, I am not likely to spend my own dough on any new products from any consumer electronics company. I am thinking of my mom this morning. When I was young, very young, my mother used to tell me: "Always wear a watch; this way people won't think that you're stupid." That thought has stayed with me my entire life. Nowadays, you see the younger generation mostly using their phones when they need to know what time it is, as well as for pretty much all information delivery. Still, the look of an adult not wearing a watch on their wrist has always carried the stigma of my mother's sentiment for me.
The new version of the Apple Watch is different. This third-generation Apple watch will not have to be tethered to an iPhone. That's interesting. Samsung already does this, but people love Apple products. What I am going to need to figure out is: Does this present significant opportunity to the telecom sector? Will the likes of Verizon (VZ) , T-Mobile (TMUS) and Sprint (S) be able to add enough "add-on" lines to increase revenue, much like they do with tablets?
This has been a rough year for telecom. I am not sure about the demand for this product. Estimates are out there that Apple has sold more than 30 million smart watches since their introduction by the firm in 2015. There are also estimates that show less than half of those sold are actually in use. Then again, those watches needed to be tethered to smart phones. This is a whole new ballgame. I don't know if this is the big one, gang. That said, if people are drawn to this product line, this could be the one that puts the rest of Apple's portfolio of products on the map. Kind of tough to see smart phones providing 55% of the company's revenues forever.
The new iPhone will cost a ton.
Ever notice on days when we hear from so many money managers, how many of them tell us how overpriced the market is? Ever wonder how these guys are still managing money, after having been so consistently wrong year after year? Ever wonder why anyone would act on anything these folks say? I wonder. New highs for the broad U.S. stock market? Massive storms wrecking large portions of highly populated states? Opportunity. North Korea takes a holiday off from saber rattling? Not fooled. Again, opportunity. The president reaches across the aisle to alleviate immediate risk to the marketplace? That one's huge. As I have gone over, that one implies greatly increased spending going forward. Tax reform back on track? Not priced in at all. Nope, not by anybody. Now, just imagine ....
The gloom and doom crowd will have their day, someday. Every dog does. Traders and investors must be flexible, however. Minds must be open to change, as well as facts that you cannot change. The table is set for increased volatility. Thanks, detective. Risk tolerance? You will likely see your mettle tested, for sure. Some of you will be shaken out. Be not afraid of the naysayers. For most of them are cowards. This is no promise, this is just my gut. The table has been prepared for higher equity prices. Earnings are still expanding. Global economies are improving. Third-quarter projections are not being reduced. Earnings projections for the S&P 500 for 2018 are running at about $145. Technology, rebuilding, defense, healthcare. You want to get out of those business lines? We have already had a rotating bear market. We're still standing. That's without any consideration for that tax reform.
The central bank? Right now, the broader market seems to find comfort when yields collapse, just without the participation of the financial sector. Guess what? On days that yields go higher, so does the marketplace, just led by that same sector. With the compression of yields over the last couple of months, real interest rates are a long way from where they can impact stocks negatively. There is a price point for credit where this is a factor, just not here, nor even close to here. Keep your eyes on the road, precisely on that spot where the rubber meets the road. Price discovery is the result of the impact of all factors upon supply and demand at any given micro-second in time. Historical valuations are but one consideration. Be open to understanding sentiment. No fear.
Still scared? Then reduce your overall exposure. It really is that simple. Save your fear for something that matters. Deciding where to place my money, I try to be smart. I hedge myself the best I can. I try to leave emotion completely out of the equation. All I want are facts. Prices are facts. I will tune out these fear mongers. They are not helpful.
You may have noticed that the Census Bureau reported that median household income had reached a new record in 2016. That record snow stands at $59,039, which in reality simply means that median household income has finally caught up to 1999 levels; 18 years in the wilderness. As negative as that sounds, 2016 median household income did grow 3.2% year over year, and that was on top of 5.2% growth the year prior ... so there is some momentum here. That's highly positive. Last year also saw the official U.S. poverty rate drop from 13.5% to 12.6%. That is also a significant positive.
Results are mixed, though. For one, the survey of household incomes has evolved over the years to more capture non-reported sources of income, which means that the data over the last 20 years is not truly comparable, and other measures for poverty still have the rate closer to 14%, but still all metrics show improvement spread over the bottom half of the income range for the last two years. That much is for now, undeniable. That is a victory. That will also bring inflation sooner or later.
08:30 - PPI (August): Expecting 2.3%, July 1.9% y/y.
08:30 - Core PPI (August): Expecting 2.0%, July 1,8% y/y. Prices at the producer level are expected to rebound sharply from what was very weak data in July. There will certainly be something of a push at the headline from the energy space, but even at the core, there should be improvement. This series does not really have much of an impact on financial markets. That focus come tomorrow when we see August CPI numbers.
10:30 - Oil Inventories (Weekly): API +6.18 million, Last Week +4.6 million barrels.
10:30 - Gasoline Stocks (Weekly): API -7.9M, Last Week -3.2M barrels. The American Petroleum Institute hit the tape and hit it hard last night. The Tuesday evening numbers showed a much larger than expected build for crude, as well as a much larger than expected draw for gasoline. This is still the extended result of Hurricane Harvey's impact on the Gulf coast of Texas. Going forward, we are also going to have to factor in the damage to demand for energy that we are sure to wee across large swaths of Florida as that state tries to recover from Hurricane Irma. Oil futures did not respond in any overt way to the numbers released last night.
13:00 - 30 Year Bond Auction. The U.S. Treasury is set to auction off $12 billion worth of 30-year bonds this afternoon. In the most recent sale of similar debt, Treasury sold $15 billion worth of this paper at an awarded yield of 2.818% and with a bid to cover of 2.32. Coverage was decent, and that auction was considered relatively strong at the time. Wednesday's auction will be highly focused upon after other auctions have not gone very well this week. Yesterday's sale of $20 billion worth of 10 years was poorly covered, and traded at a yield well above where U.S. 10-years were bid at 1pm.
14:00 - Federal Budget Statement (August): Expecting $-108 billion, July $-42.9 billion. When it comes to the government's monthly budget statement, July can be inconsistent, Sometimes terribly negative, sometimes relatively manageable. This year, we sort of caught a break. August happens to be much more regular, and that's not a good thing. August is usually brutally negative. This year should be no different. You will not feel this one hit the tape as you work your way through the afternoon.
Sarge's Trading Levels
These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.
SPX: 2513, 2506, 2498, 2490, 2481, 1269
RUT: 1436, 1430, 1424, 1418, 1411, 1405
Today's Earnings Highlights (Consensus EPS Expectations)
Before the Open: CBRL ($2.19)
After the Close: UNFI ($0.70)
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