MarketView for September 24

Summary

The major equity indexes gave up a little ground on Monday as a disappointing forecast from Caterpillar in combination with less than ideal German data had Wall Street back in worry mode that global growth may remain sluggish. Why is this earth shaking news? It has been that way for months. An index of German business sentiment declined for the fifth consecutive month in September, indicating that Europe's strongest economy was moving closer to recession mode as the euro zone's debt crisis continues in limbo.

To make matters worse, minutes before the close, Caterpillar cut its earnings forecast for 2015, citing weakness in the world economy. Its stock fell 0.9 percent to $90.87 and was the top drag on the Dow. In after-hours trading Caterpillar's saw its share price fall another 2.1 percent to $88.99.

Concerns about a stalling global economy also were reflected in energy and technology shares, with the S&P energy index down 0.5 percent and the S&P 500 technology index down 0.8 percent. Nonetheless, the S&P 500 is on track for a 7.6 percent gain for the quarter. Some of this gain is undoubtedly due to what is referred to on the Street as "window dressing," where fund managers add some of the latest outperformers to their portfolio to make themselves look better prior to sending out statements to clients.

In addition, some of the gains are certainly attributable to stimulus plans. On September 6, the European Central Bank announced its bond-buying plan; a week later, the Federal Reserve unveiled a third round of quantitative easing intended to bolster the economy and reduce U.S. unemployment.

Dragging down the Nasdaq, Apple fell 1.3 percent to $690.79 even as its latest iPhone sold out. Concerns arose that the company was unable to produce the new phone quickly enough to meet demand. Others felt that just selling 5 million phones since the introduction last week was a disappointment. That viewpoint is just plain silly.

Facebook saw its share price fall 9.1 percent to $20.79 after Barron’s took the Company to task. It was the Nasdaq's most actively traded stock. In contrast, shares of Google reached a record high of $750.04 as analysts said its solid advertising business and its revenue make the company look more attractive compared with once-hot newcomers to the social media scene. Google's shares ended the day at $749.38, a gain of 2.1 percent.

In the energy sector, the price of WTI crude oil fell 1 percent to settle at $91.93. Worries about global demand pushed crude prices down more than 6 percent last week. Yet, so far this quarter the energy sector has performed well with the S&P energy index up 10.6 percent.

Shares of Lennar closed down 1.5 percent at $36.96 despite reporting steep increases in its third-quarter earnings and revenue. Lennar's results follow a similarly strong report from KB Home last week, and together give further evidence the housing market is moving toward recovery.

Among the largest decliners on Monday was Peregrine Pharmaceuticals, down 78.5 percent to $1.16. The company said it found major discrepancies in the results from a mid-stage study of its experimental lung cancer drug. The study was conducted by a third-party contractor.

Volume was lower than average on the three major equity exchanges with roughly 5.54 billion shares changing hands as compared with the year-to-date average daily closing volume of 6.54 billion shares.

Five Million in Three Days

How could anyone be anything but amazed at Apple’s performance over the past several days in terms of the sales it has made of its new iPhone 5? Selling 5 million of anything in three days is off the charts. Yet the Company sold over 5 million iPhone 5 smartphones in the three days since it hit stores. Apple also said it had run out of its initial supply and many pre-orders were scheduled to go out in October.

The early total for the iPhone 5 topped sales of the iPhone 4S, which sold more than 4 million units in its first weekend after Apple introduced it in October 2011. The numbers do not include units that have yet to be shipped or delivered to customers as Apple books sales only when online customers sign for the purchase.

Tim Cook, Apple CEO, said the company is "working hard to build enough iPhone 5s for everyone."

Expectations for new Apple products were so high - some analysts forecast Apple selling as many as 10 million phones over the weekend - that Wall Street was not wowed by the latest numbers. The stock was down 1.7 percent at $688.64 in afternoon trade.

Given the demand, Apple is being closely watched for any supplier problems that may slow down the smartphone production. Supply limitations are likely to weigh on weigh on the Company as the iPhone 5 is launched in another 22 countries on Friday. To complicate matters, Apple's largest contract manufacturer Foxconn Technology closed a factory in the northern Chinese city of Taiyuan after a riot broke out among 2,000 employees.

Foxconn did not confirm which plants supply Apple, but it is thought that the plant is among those that assemble and make parts for Apple's iPhone 5. Apple referred questions on the factory to Foxconn. Apple also assembles its devices at factories run by Pegatron Corp.

On the parts side, Sharp, Apple's key supplier for screens has been struggling with high costs and scrambling to raise funds to pay debt. The word on the Street is that Sharp’s output of new iPhone displays had fallen behind schedule.

The iPhone 5 has been one of Apple's most aggressive international rollouts to date. The phone will be available 31 countries on September 28 and in more than 100 countries by the end of the year. In addition, the iPhone is Apple's highest-margin product and accounts for half of its annual revenues.

Nonetheless, even with all its success, Apple is facing stiff competition from smartphones that run on Google's Android software, which has become the most-used mobile operating system in the world. Apple's key supplier as well as rival, Samsung Electronics, has taken the lead in smartphone sales.