Apple's earnings miss could undermine wobbly market
Apple stock falls in after-hours trading after it reports disappointing quarterly earnings and revenue. Apple faces same headwinds as other multinationals with lower earnings this quarter.
Even Apple wasnâ€™t strong enough to escape the economic headwinds that are bruising corporate profits and unhinging the stock market.
AppleÂ fell sharply in after-hours trading Tuesday after aÂ big earnings and revenue miss. Although some of its shortfall was related to its pending iPhone 5 release, its report is likely to be a drag on the market Wednesday and take other tech stocks with it.
Â â€śObviously, itâ€™s big for theÂ Nasdaq. Itâ€™s 20 percent of the index. Overall, itâ€™s an important indicator with respect to the economy and sentiment in general,â€ť said Dan Greenhaus, chief global strategist at BTIG.
Â Apple follows many other major companies with lower- than-expected revenues, the result of a slowing Europe and world economy, stronger dollar and more reluctant consumer. Dozens of companies report before the opening bell Wednesday, and many of them may signal the same problems.Â Caterpillar,Boeing,Â PepsiCoÂ andÂ FordÂ are among those companies reporting in the morning, andÂ Visa,Â Whole Foods,Â ZyngaÂ andÂ AkamaiÂ report after the closing bell.
The disappointing report from Wall Streetâ€™s favorite stock also comes as Europeâ€™s sovereign crisis has once more been hammering global markets, and U.S. economic data continues to disappoint. The Richmond Fed manufacturing survey, for instance, fell Tuesday to its lowest level since April, 2009, with a large drop in shipments and orders.
Â But Apple is a favorite and it is viewed as unique among multinationals, and other consumer and tech companies. A beat by Apple and positive forecast might have helped boost the stock market.
â€śA big swing and a miss there,â€ť said Jack Ablin, CIO of Harris Private Bank. â€śThereâ€™s two things here. This is a company thatâ€™s been routinely beating estimates and whisper numbers and everything else, and the other one is bigger than that. Itâ€™s that this is a company thatâ€™s created a brand thatâ€™s really been different, and with respect to their stock, had been different in a lot of respects, impervious to the vagaries of the global economy and the market and everything else.â€ť
Apple earned $9.32 per share in its fiscal third quarter, up from $7.79 per share last year but more than a dollar below expectations. Apple revenues rose 23 percent to $35 billion, but $2.2 billion below forecasts. Apple also disappointed on its outlook, guiding analysts to $7.65 per share for the current quarter on revenues of $34 billion, down from an estimated $10.22 per share and revenues of $38 billion.
Â â€śItâ€™s obviously bad news for Apple. Itâ€™s bad news for equities indices. We have to see if like other companies, this is just sort of a hiccup, or thereâ€™s something structural here --- thereâ€™s just a not a desire to replace as many iPhones. Thatâ€™s sort of the question. Is this just people waiting for the iPhone 5 in the fall or is there a macro problem,â€ť said Greenhaus. â€śâ€¦Now weâ€™ve seen dozens of other companies saying thereâ€™s a macro problem.â€ť
Â Apple sold 26 million iPhones in the quarter, below some forecasts, but it sold 17 million iPads, better than expected. â€śItâ€™s just a disappointing iPhone number. We were looking for 29 million units. They did better on the iPad,â€ť said Gene Munster, analyst at Piper Jaffray on â€śClosing Bell.â€ť â€śWhile I got the iPhone number wrong, I think this is dĂ©jĂ vu to what we saw in September of last year. Itâ€™s going to be really hard to break out how much is macro relatedâ€¦and how much is related to an iPhone 5 slowdown.â€ť
Â The Apple news could not come at a worse time for market confidence. In the past week, Europeâ€™s debt crisis has more seized control of markets, driving stocks and commodities lower, pushing shorter duration Northern European sovereign yields into negative territory while the yields of Spanish and Italian debt skyrocket. A flight-to-quality trade into the U.S. Treasury market drove yields to record lows, as fearful investors watch for signs of contagion from a Europe that doesnâ€™t seem to have a plan to stop the flow of bad news. The 10-year was yielding a record 1.40 Tuesday.
Â Markets were spooked Tuesday by reports thatÂ Greece may need more funds, and the continuing speculation that Spain may need to seek a bailout of its sovereign. The market speculation also engulfed Italy, as it is seen as the next sovereign in line that could need help.
Â â€śSince the financial crisis, this is the first time weâ€™ve gone into anÂ earnings seasonÂ thatâ€™s going to be worse. Weâ€™re not sure how to react to that with most of southern Europe melting into the Mediterranean,â€ť said Art Hogan of Lazard Capital Partners.
â€śI think we should be as concerned as we ever have been about the European situation,â€ť Hogan said. â€śI think itâ€™s as nerve wracking as itâ€™s ever gotten.â€ť
Â StocksÂ fell sharply after the headlines on Greece, but stocks finished off their lows after a Wall Street Journal story that said the Fed is moving closer to some sort of stimulus and could consider action next week or at its meeting next month. While containing no new ideas, the article helped lift stocks as traders speculated the reporter got the story from top Fed officials. TheÂ DowÂ finished down 104 points to 12,617. TheÂ S&P 500Â was off 12 at 1338, just above an area of support, and the Nasdaq fell 27 to 2862.
Â â€śItâ€™s certainly going to offset the Fed,â€ť said Ablin of the Apple news. â€śTheyâ€™ve got their party hats and their pom poms on, and I think the Apple announcement is going to take the air out of their balloon.â€ť
Â Miller Tabak strategist Peter Boockvar said investors should beware of market expectations about the Fed, which he says have been supporting stock prices. â€śAt the end of the day, if earnings are going to drive where stocks go, and earnings growth is slowing dramatically, itâ€™s irrespective of what the Fed is going to try to do to keep asset prices higher,â€ť he said on â€śClosing Bell.â€ť
Â Greenhaus said he remains cautious on stocks and expects a difficult summer. â€śGiven the level of uncertainty with earnings, and the concern about Greece â€” they need another bailout. And you have Moodyâ€™s putting a couple of triple A countries on negative watch, weâ€™re not enthusiastic about investing. I think youâ€™re in a dangerous moment here for investors,â€ť said Greenhaus.
Â Besides earnings, Apple fallout and Europe, there is just one economic report Wednesday. New home sales are reported at 10 a.m.
Â â€śHousing is one bright spot in the economy,â€ť said Mark Zandi, chief economist at Moodyâ€™s Economy.com. â€śItâ€™s improving. Itâ€™s steadily improving in sales, construction and now in house prices. Housingâ€™s gone from being a hurricane in the economy to a tailwind. We need all the help we can get.â€ť As long as the job situation does not deteriorate further, Zandi said the lower rates should help boost home purchases, as rising rents are making buying more attractive.
Â There is also a 1 p.m. auction of 5-year notes Wednesday, and the House Financial Services Committee will hear testimony from Treasury Secretary Timothy Geithner. Geithner is appearing to discuss banking regulation but will certainly be asked about what he knew aboutÂ LiborÂ and the rigging scandal.