Apple shared some news which the market after the close Tuesday, with their announcement of their quarterly results, and the market expressed its approval on Wednesday.
On a day where stock markets were decidedly negative, nothing stood in the way of the side party that the markets had for Apple on Wednesday. Apple gapped up big on an earnings call that was very well received, sending the price of the stock up by 5% overnight, and the stock kept its gains throughout a rather turbulent day, finishing right where it started.
Apple was actually up 7% in the afternoon, and did fall victim to the robust sell-off during the last two hours of trading, but had gained enough that this didn’t matter so much. Fed Chairman Jerome Powell shared his views of the economy with us in a press conference after the latest meeting of the Open Market Committee, and it seems that the market had some false hopes about an interest rate cut that did not materialize.
It really wasn’t much of a secret that the Fed is not leaning toward cutting rates at the moment, but when inflation numbers came in lower than expected, this did stimulate some hope in the market. Managing inflation is what the Fed does, so if inflation is lower, we might want to think that this might be the time for them to reverse their course and start stimulating with a rate cut. If we were thinking this, we did walk away disappointed from this latest Fed meeting.
Chairman Powell did make note of the inflation data, but made it clear that the sum of all factors at work had the Fed still in watching mode. He remarked that “we suspect that some transitory factors may be at work. Thus, our baseline view remains that, with a strong job market and continued growth, inflation will return to 2 percent over time and then be roughly symmetric around our longer-term objective.”
It will therefore take more than this recent number to get them out of their chairs, but there’s more to concerns about inflation than just the inflation numbers. This economic data was actually pretty terrific, with growth up and inflation down, and that’s a healthy sign and takes us closer to the ideal actually, even though something like this never could be sustainable. Powell did recognize this.
The worry about low inflation, the only one, is that growth tends to go right along with it, and those who thought that inflation alone dropping would prompt a response were caught in wishful thinking really.
Apple Still Has Room to Grow to Get to Last October
A 7% up day would have been better of course in Apple’s ongoing recovery, which continues to be an impressive one. Those who were looking to play the rebound in the market that happened late last year would have found few highly liquid stocks much more tempting, and Apple did not disappoint. Apple stock is now up 48% from where it traded on January 3, more than twice what the market has gained since then.
Those who held on to Apple during the ride down as well are still waiting to get back to where they were before all this happened. Apple gave back $90 a share on the way down, and we’re now less than $22 away after Wednesday’s $10 a share gain.
Sliding iPhone sales were at the heart of the matter then, and still are, although the overall picture of the company hasn’t been affected as much as some thought. There are still analysts bearish on Apple for this reason, like Jun Zhang of Rosenblatt Securities, and remains pessimistic about the company even after this positive call.
Zhang’s $150 price target isn’t much higher than the $142.19 it traded at on January 3, at the bottom of that move, and even lower than the $157.74 it started the year at. Zhang cites iPhone’s declining sales as the reason for his negative outlook, even though we all know that this will happen and it was mentioned specifically during their release on Tuesday, the one that pumped up their stock price by the 5%.
It’s not that this report has Apple shining like the back of a new iPhone though, and there’s no doubt that the finish has become dulled. These things are all about perception versus reality, and the phone that Apple showed us on Tuesday was at least shinier than we thought it would be at this point in time.
The numbers from Apple sure don’t look that appealing, with revenue off by 5% year over year, and earnings off by 10%. Apple CEO Tim Cook did put a positive spin on things though, citing some wins that the company is enjoying with several of its products and services, and the call overall was pretty optimistic.
$75 Billion More of Share Buybacks is a Big Deal
CFO Luca Maestri had the big news though, as he shared that Apple’s board has authorized a further $75 billion in share buybacks. If you are looking for a stock to go up, nothing does it quite like a company buying back its shares, and if not for this, stock markets would all be down in 2019, not up a lot. People have been selling stocks, but companies have been buying them back enough to turn what would have been a further loss in 2019 to a wonderful first 4 months if you are on the long side.
Your average investor would not really get the significance of this share buyback announcement, but those who wield the big sticks sure do, and this surely contributed to the stock getting pushed up by another $10 a share, even before these additional stock purchases kick in. We can count on them to put further upward pressure on Apple’s stock price, as this is why companies do this.
There are two ways that companies reward stockholders, which are by paying dividends and by buying back stock. Reducing the pool of stocks out there makes the stock in circulation more valuable, since there is less of it. Issuing new stock does the opposite, it raises money for the company but dilutes its stock. Less shares mean each is worth more, all other things being equal, and that makes investors happy, including the big shareholders that call the shots.
Apple’s numbers may be down but they still managed to beat the forecasts on the street, which is what really matters and causes stock prices to correct upward generally, which happened in this case as well. Apple’s iPhone sales are still looking on the dimmer side, but all told, the company and especially its stock continues on its journey back to where it was last October 3, a journey that by all appearances is not over yet.