MarketView for April 24

 

Summary

 

Shares of Apple, the most valuable U.S. company by market capitalization, rose 8.2 percent to $567.77, the biggest gain since August, a day after the company posted revenue that far outpaced expectations. Apple also approved another $30 billion stock-buyback plan, raised its dividend and authorized a seven-for-one stock split.

 

The three major equity indexes had opened sharply higher, with the Nasdaq initially climbing more than 1 percent before turning negative in the first half-hour of trading. Wall Street bounced off session lows with gains again concentrated in the Nasdaq, but stocks finished the day well off earlier highs.

 

Much of the volatility was driven by comments from Russian Defense Minister Sergei Shoigu, who said Russia started military drills near the border with Ukraine. Ukrainian forces killed up to five pro-Moscow rebels as they closed in on the separatists' military stronghold in the east.

 

Caterpillar rose 1.8 percent to $105.28 after the company reported better-than-expected earnings and raised its full-year profit outlook.

 

Limiting the Dow's advance were Verizon Communications and 3M whose shares fell after the companies' results missed expectations. Verizon fell 2.4 percent to $46.28, while 3M was down 1 percent to $136.65.

 

After the close, Microsoft rose 2.4 percent to $40.40 after the world's largest software company posted third-quarter results.

 

Amazon advanced 0.5 percent to $338.89 in extended-hours trading after the company posted revenue that exceeded estimates, while earnings were in line with forecasts. The company posted earnings of 23 cents a share, matching Wall Street expectations, while revenue was higher at $19.74 billion, versus expectations for $19.43 billion.

 

Facebook reported a 72 percent jump in first-quarter revenue, lifted by its mobile advertising business, after the closing bell on Wednesday. The stock moved between positive and negative territory during the session before closing down 0.8 percent at $60.87.

 

Profits are seen rising 2.9 percent this quarter, down from the 6.5 percent growth rate estimated at the start of the year, but above the low of 0.6 percent seen last week, according to Thomson Reuters data.

 

Zimmer agreed to buy Biomet in a deal valued at about $13.35 billion to broaden its portfolio of products that treat bone and joint-related disorders. Zimmer's stock was up 11.5 percent to end the day at $101.97.

 

A number of cloud-computing stocks, which have struggled lately but rose last week, opened higher and then quickly sold off. Workday fell 5.3 percent to $72.59 while Salesforce.com fell 1.6 percent to close at $54.73.

 

Volume was light, with approximately 6.07 billion shares changing hands on the major equity exchanges, a number that was below the 6.59 billion share average so far this month, according to data from BATS Global Markets.

 

A 7 for 1 Stock Split

 

Wednesday saw Apple offer up a 7 for 1 stock split as hot iPhone sales pushed up profits with January-March earnings figures showing profit of $10.2 billion on $45.6 billion in revenue. The earnings report came with Apple chief Tim Cook hinting that new products are on the way from the maker of iPhones, iPads, iPods, and Macintosh computers.

 

"We're very proud of our quarterly results, especially our strong iPhone sales and record revenue from services," Cook said in a press release. "We're eagerly looking forward to introducing more new products and services that only Apple could bring to market."

 

Apple will spend an additional $30 billion to buy back shares of the company's stock, taking to $130 billion how much it plans to spend on repurchases and dividends by the end of next year.

 

Apple is pouring $90 billion into buying back shares because it believes the stock is undervalued in the market, according to executives.

 

"We’re confident in Apple's future and see tremendous value in Apple's stock, so we’re continuing to allocate the majority of our program to share repurchases," Cook said. "We’re also happy to be increasing our dividend for the second time in less than two years."

 

Apple will raise its quarterly dividend to $3.29 per common share and said it plans to raise the figure annually. Its board also endorsed a seven-for-one stock split, with each shareholder of record as of June 2 receiving six additional shares for each one they hold.

 

"We are taking this action to make Apple stock more accessible to a larger number of investors," Cook said.

 

While iPhone sales handily beat Wall Street expectations in the quarter, the performance underscored how heavily Apple's revenue relies on its hit smartphones, according to Gartner analyst Van Baker. Powerful iPhone sales figures also offset "less than stunning" iPad sales, the analyst noted.

 

"Apple's dependence on the iPhone is even higher than it used to be," Baker said. "It is even more important to bring some new products."

 

Baker said that financial guidance for the current quarter didn't indicate that Apple was poised to launch a major new product, pushing any potential unveilings into the final three months of this year.

 

Rumors regarding what Apple may introduce as its "next big thing" have included an Internet-linked smart watch and a revamped Apple TV home entertainment box and service.

 

"We currently feel comfortable in expanding the number of things we are working on," Cook said during an earnings call when asked about Apple diversifying its offerings. "We have been doing that in the background and are not ready yet to pull the string on the curtain."

 

There remains tremendous room for growth in the smartphone market, and iPhones did well in the opening quarter of the year across the range of geographies from mature to developing, according to Cook.

 

Apple reported that sales of iPhones in China climbed to an all-time quarterly high, with a flood of first-time buyers lured away from smartphones powered by Google-backed Android operating software.

 

And while the growth if iPad sales slowed in the quarter, the Apple tablets were touted as a rare simultaneous "instant hit" in the consumer, business and education markets.

 

"It has been the fastest growing product in Apple's history," Cook said of iPad, noting that the company has sold more than 210 million of the tablet computers since they were introduced.

 

"I feel great," Cook said of iPad's progress. "That doesn't mean that every 90 days there is going to be a number everybody is thrilled with; what it means is that over time the iPad figure looks very good."

 

Durable Goods Orders Exceed Expectations

 

The Commerce Department reported on Thursday that orders for durable goods rose more than expected during March and a measure of business capital spending plans surged, bolstering views of acceleration in growth in the second quarter. Although the economy got off to a slow start as abnormally cold weather disrupted activity. Thursday's durable goods report was the latest confirmation that perhaps we are off and running.

 

Orders goods meant to last three years or more, increased 2.6 percent last month as demand rose across all categories. That result came on the heels of a 2.1 percent increase in February and exceeded Street expectations for a 2.0 percent gain.

 

The report fit in with other data such as industrial production, retail sales and employment that have suggested the economy gained steam as the troubled first quarter came to an end.

 

Growth in the first three months of this year is forecast to have braked sharply because of the harsh weather and an inventory overhang from last year that forced businesses to place fewer orders for goods with manufacturers. The end of long term unemployment benefits, along with reductions in the food stamp program, had resulted in a loss of economic momentum.

 

While first-quarter gross domestic product growth is estimated at around a 1.5 percent annual rate, forecasts for the April-June period are above a 3 percent pace. The economy grew at a 2.6 percent rate in the fourth quarter.

 

The durable goods report indicated that non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, increased 2.2 percent in March after falling 1.1 percent the prior month. The expectation had been for an increase of 1.5 percent last month.

 

Core capital goods shipments, which are used to calculate equipment spending in the government's GDP measurement, rose 1.0 percent. They had increased 0.7 percent in February.

 

A strengthening manufacturing sector should help offset housing weakness and allow the Federal Reserve to continue reducing the amount of money it is pumping into the economy through monthly bond purchases. The Fed, which meets next week, is not expected to start raising benchmark interest rates before the second half of 2015.

 

Unemployment Claims Show Slight Increase

 

The Labor Department reported on Thursday that initial claims for state unemployment benefits rose by 24,000 claims to a seasonally adjusted 329,000 claims for the week ended April 19

 

However, it is likely that the increase reflected difficulties adjusting the data for seasonal fluctuations given a late Easter this year and did not mark a shift in the labor market's recovery.

 

The four-week moving average for new claims, considered a better measure of underlying conditions as it irons out week-to-week volatility, rose by only 4,750 claims to 316,750 claims. That was not too far from pre-recession levels.

 

The number of Americans still receiving benefits after an initial week of aid in the week ended April 12 was the lowest since December 2007. That period coincides with the monthly survey of households that the government uses to calculate the nation's unemployment rate. Continuing claims declined between the March and April survey periods, suggesting the jobless rate could fall this month from 6.7 percent in March.