Stock Gains Moderate, Apple Dips on Goldman Downgrade

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Stock gains moderated Friday afternoon, although they remained strong, as President Trump’s plan to reopen the economy is gaining traction with the market. Serving as a drag on the market were moves out of big tech names like Apple  (AAPL) - Get Report, which Goldman Sachs analysts downgraded. 

All three major U.S. indices were higher, with the S&P 500’s gain slowing to 1.5% from 2.4% in the morning. The 10 year treasury yield slipped to 0.61%, after being higher in the morning, a sign that investors county to hedge their bets against what some call a frothy equity market. 

Trumps 3-step plan to reopen the economy has been well received by some governors, as the spread of the coronavirus decelerates in some states, although Morgan Stanley biotech analysts saying the data across the country is “mixed.” 

“Investors’ appetite for risk is starting to recover from early March,” wrote Scott Knapp, chief market strategist at CUNA Mutual Group in emailed remarks to reporters. “We are not out of the woods yet. Markets could give back some of the recent gains as people realize the amount of damage done.” 

Apple shares fell 2.3% to $280, after Goldman Scahs analyst Rod Hall downgraded the stock to sell and lowered his price target to $233 from $250, citing an even harsher contraction in iPhone sales than previously expected. Hall sees a 36% decline in iPhone shipments globally in the second quarter of 2020 even as China rebonds from the virus. China represents roughly 20% of iPhone sales. Hall’s 2020 revenue and earnings per share forecast moved down to $246 billion and $11.31, both well below Wall Street’s consensus. 

Hall’s 2021 EPS forecast fell by 12% to $13.17, as his revenue forecast was moved to $274 billion. Not only does he see average selling prices on devices falling slightly, but he sees Apple TV Plus revenue, expected by some to be a strong contributor to services growth, coming in lower than initially expected. Hall looks for total services revenue in 2021 to grow 7% year-over-year, compared to an expected 16% in 2020. 

Investors, who had recently bought up shares of Amazon  (AMZN) - Get Report and Netflix  (NFLX) - Get Report, seem to be taking some risk off the table for those stocks. Both stocks, which experience either a tailwind or no headwind from the virus-induced recession, are up 27% and 29% year-to-date, respectively. Friday, those stocks fell 2.3% and 4.5%. 

Microsoft  (MSFT) - Get Report, up 11.7% year-to-date, slipped about 0.5% Friday. 

Investors weren’t overly enthusiastic about growth stocks Friday, but they moved into cyclicals that can benefit as consumers potentially leave home more than they have of late. 

Nike  (NIKE)  and Lulu Lemon  (LULU) - Get Report rose 1.7% and 4.2%. 

Banks, which benefit from more loans and better quality of consumer credit, rose. JPMorgan  (JPM) - Get Report and Bank of America  (BAC) - Get Report rose more than 6% each. 

Some on Wall Street now warn against optimistic earnings expectations, overstretched valuations and uncertainty ahead. 

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