It was a busy week for business, economic and investing news. The stock market came under more pressure as Apple (AAPL) reported its first sales decline since 2003, while Facebook (FB) and Amazon (AMZN) turned on the gas. The Federal Reserve signaled it’s in no rush to raise rates, while the U.S. economy crawls.
Techs Lead Stock Market Sell-Off
The market rally came under more pressure amid a slew of earnings reports and big economic news. The Nasdaq tumbled 2.7% for the week, falling through its 200-day line on Thursday and its 50-day average on Friday, as losers such as Apple, Twitter (TWTR) and First Solar (FSLR) trumped big gains for Facebook and Amazon. The S&P 500 and Dow are well above those support levels, but also tumbled, with all of the losses coming Thursday-Friday. Oil prices continued to march higher, helped by a weaker dollar and further declines in U.S. production. The 10-year Treasury yield gave up much of its recent gains.
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Is Apple No Longer A Growth Company?
The tech titan certainly wasn’t a growth company in its fiscal second quarter, reporting its first revenue decline since 2003 as iPhone unit sales tumbled. Earnings per share fell 18%, worse than expected. And Apple gave weak guidance for the current quarter. Apple hasn’t had a huge product since the big-screen iPhone 6, and smartphone sales generally are stagnating. At this point Apple is so huge it will be hard for a new product to really move the needle.
In another sign of its shift from rapid growth to a more mature model, Apple added an additional $ 50 billion to its shareholder return program, with more buybacks and a higher dividend.
Meanwhile, activist investor Carl Icahn decided to cash out of Apple stock, and so did others. Apple stock fell 11.3% for the week, nearly settling at its worst close since mid-2014.
Apple chip suppliers generally fared relatively well, in part due to diversifying away from Apple or smartphones generally.
Apple Investors Worry Glory Days Are Over
Fed Stands Pat, And So Does The Economy
The Federal Reserve, as expected, voted to leave interest rates unchanged at its latest policy meeting and gave no hints that it would tighten before the fall at the earliest. The Fed noted that labor markets have strengthened even as economic growth slowed. And that’s true, for now. The U.S. economy rose at a 0.5% annual rate in the first quarter, the weakest in two years. Meanwhile, jobless claims are near 42-year lows. If the economy is barely growing, it’s hard to see how the U.S. can continue to add 200,000 jobs a month. But that’s what analysts are expecting in Friday’s April employment report.
The Fed’s go-slow approach — coupled with the Bank of Japan’s unexpected decision not to increase its stimulus efforts — pushed the dollar to big losses. That could boost U.S. multinationals’ profits and give a further lift to dollar-priced oil and other commodities.
Amazon Sales Soar, Will Keep Flying
The e-commerce giant sees Q2 sales of $ 28 billion-$ 30.5 billion, largely above Wall St. views and a 26% gain at the midpoint. While that would mark a slowdown from Q1’s 28% pop, the highest in nearly 4 years, it would still be faster than what was typical the past three years. Q1 earnings also crushed estimates, as cloud unit Amazon Web Services remained hot. China’s version of Amazon, Alibaba (BABA), reports Thursday.
Autonomous Driving Is A Team Effort
Alphabet (GOOGL) unit Google, Ford Motor (F), Uber, Lyft and Volvo announced Tuesday the formation of a coalition to advocate for self-driving cars. The lobbying effort comes as automakers race to develop autonomous technologies. Alphabet is in late-stage talks with Fiat Chrysler (FCAU) about a partnership regarding autonomous cars, according to multiple reports. Meanwhile, Tesla Motors (TSLA) already has self-driving features in its electric cars, but has not unveiled plans to join the coalition. Tesla will report earnings on Wednesday, with autonomous tech firm Mobileye (MBLY) out Thursday.
Facebook, LinkedIn Are Hot
Social networking kings Facebook and LinkedIn had a good week, as both posted Q1 earnings that topped estimates and sent the stocks higher. Facebook reported its third straight quarter of accelerating earnings and revenue growth. Despite concerns about slowing user engagement, advertisers are definitely using Facebook. Mobile advertising accounted for 82% of Facebook’s $ 5.2 billion in ad revenue, up from 73% in Q1 2015. Facebook stock spiked Thursday to a record high of 120.71, but pulled back to close the week modestly above a 117.09 buy point.
LinkedIn renewed investor confidence after a harrowing Q4 that saw its stock plunge 44%. LinkedIn turned in a solid Q1 earnings that investors applauded.
Companies Focus on Cost Cuts
With the U.S. and global economy growing at a tepid pace, companies are stressing cost cuts to prop up earnings as revenue flatlines or falls. In the latest week, defense contractor Lockheed Martin, snack giant Mondelez International (MDLZ) and Procter & Gamble (PG) announced recent or new efforts to curb expenses, restructure or sell assets. They join the likes of Coca-Cola (KO) and banking giants JPMorgan Chase (JPM) and Bank of America (BAC). While cuts may help companies in the short run, they need stronger top-line growth to fuel earnings longer term.
Media Merges For Survival
Shifting priorities for media companies came into play last week, as a handful of megamergers captured the spotlight and served as an attempt to keep growing or simply cling to survival. Cable and content titan Comcast (CMCSA) sought to grow in foreign markets via a $ 3.8 billion deal to buy DreamWorks Animation (DWA), the studio responsible for “Shrek” and “Kung Fu Panda.” Meanwhile, it looks like Comcast rival Charter Communications (CHTR) will be able to keep up, as its $ 55 billion bid to buy Time Warner Cable (TWC) won regulatory approval. But survival in the struggling newspaper industry was on the mind of USA Today parent Gannett (GCI) as it bid $ 815 million to buy Tribune Publishing (TPUB), owner of the Los Angeles Times and Chicago Tribune.
Big Oil Adjusts
Crude oil futures continued to rise, hitting 2016 highs. But Big Oil is still adjusting to lower prices. Saudi Arabia aims to reduce its oil dependence and float less than 5% of Saudi Aramco in an IPO, valuing the world’s largest oil company in excess of $ 2 trillion Meanwhile, ConocoPhillips (COP) slashed its 2016 capital spending even further and BP (BP) said it was considering further cuts in ’17. Baker Hughes (BHI) warned that N. American rig counts still have room to fall, but the U.S. count may stabilize later this year. Chevron (CVX) swung to a loss in Q1. While U.S. production falls overall, output for most majors rose even as investment fell. Exxon (XOM) lost its AAA rating at S&P, but still kept its commitment to its dividend, raising it to 75 cents from 73 cents.
Quarterly results from shale players Continental Resources (CLR), EOG (EOG) and Carrizo (CRZO) are out this week.
Medical M&A Returns
Medical merger activity took off Thursday. Abbott Laboratories (ABT) inked a $ 25 billion buyout deal with cardiac device giant St. Jude Medical (STJ). Abbott’s former biopharma arm AbbVie (ABBV) agreed to buy biotech startup Stemcentrx for $ 5.8 billion plus up to $ 4 billion in possible milestone payments. Big French pharma Sanofi (SNY) made an unsolicited $ 9.3 billion cash bid for smaller drugmaker Medivation (MDVN). Medivation rejected Sanofi’s offer, but Sanofi vowed to press on, and Medivation’s stock traded as if investors are expecting Sanofi (and perhaps another bidder) to go higher. Both Stemcentrx and Medivation are focused on cancer treatments, a field that has provided some of the biggest drug launches of recent years.
Chipotle Recovery Is Casual, Not Fast
Chipotle Mexican Grill‘s (CMG) recovery might be slow-going, with April same-store sales down 26% to date, surprising many. The burrito king logged its first-ever quarterly loss — of 88 cents per share — in Q1, though Wall Street expected worse. A revenue decline to $ 834.5 million missed views, as comps plummeted 29.7%.
But another fast-casual chain, Panera Bread (PNRA), reported strong results. Its stock is setting up in a short consolidation going back to March 8.
Burger King parent Restaurant Brands International (QSR) turned in mixed results, Domino’s Pizza (DPZ) missed completely and Dunkin’ Brands (DNKN) edged past forecasts.
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