WASHINGTON, January 27, 2016 – After a nasty smash downward this morning, led by a decline (of course) in oil prices, markets suddenly swung to the upside at the noon hour of Wednesday, moving sharply up again. As of 1 p.m. EST, however, the averages seem to be changing their minds once again, with the Dow and NASDAQ slightly to moderately off and with the broader-based S&P 500 trending up slightly.
The culprits and/or heroes of today’s non-moves thus far are Apple (symbol: AAPL) and oil prices (often tracked through the oil ETF, USO). The former reported nifty profits, as we expected here, but on somewhat lower sales, due largely to slowdowns in China and other countries affected by the appreciating dollar plus slowing sales of the iPhone 6 models.
As you’d expect when the bears are in power on Wall Street, traders chose to ignore Apple’s splendid profits and focus on the (likely temporary) declining sales figures, and focus instead on those declining sales, ignoring the currency influence and the fact that the upcoming new iPhone 7 models—a major rev as opposed to the minor iPhone 6 rev—are likely cannibalizing current sales of the iPhone 6.
According to CNBC.
“Apple said its overall profit for the first quarter of its 2016 fiscal year rose 1.9 percent, to $18.4 billion, or $3.28 per share, from $18 billion and $3.06 a share last year. (The 7.2 percent gain in per-share earnings reflects stock buybacks that reduced Apple’s share count.)
“Sales rose 1.7 percent, to $75.9 billion, but would have been up 8 percent if the value of the world’s different currencies had stayed the same as last year, Apple said. ‘The difference is about the size of an average Fortune 500 company,’ [Apple CEO Tim] Cook said.”
Predictably, since it moved to the Dow Jones Industrials, traders have now decided that Apple is no longer a growth company but just another boring, dividend-paying IBM. It’s tedious, it’s not true, but it’s their story and they’re sticking to it. We’ll likely see how foolish this is over the next two years or so. But meanwhile, AAPL is being shellacked in Wednesday trading for its above average profitability, currently down $4.45 per share, off about 4.4 percent at $95.60 per share.
With regard to oil… After yesterday’s nice rally, which also kicked off a general market rally, oil plunged this morning again, before… un-plunging. It dropped to a low of $30.14 bbl. for West Texas Intermediate (WTI) before shooting back up to a high of $32.84. As we write this around 1 p.m., WTI is backing off once again, perched at $31.99 bbl. and still moving around. It makes no sense, but wealthy traders are sure having some fun today.
Bottom line, however is this: the Federal Reserve will be officially issuing its January 2016 prognostications/deliberations/statement at 2 p.m., and many of today’s market gyrations may very well be due to various sides taking bets on what these retro-Keynesians may be saying next. Clearly, December’s tiny rate hike was at least a philosophical or timing mistake, given its disastrous effects on stocks since that time—although violent oil price declines haven’t helped.
That said, someone somewhere needs to start getting interest rates back to normal, albeit by tiny baby steps, in order for the world economies to begin to “normalize.” It’s a conundrum, for sure, caused at least in part by the Fed’s previous reluctance to begin those rate hikes sooner.
What the press never reports, of course, is that both Congressional and White House muckety mucks haven’t done a damned thing for the economy since January of 2008, leaving the Fed as the sole adult representatives of fiscal reason in the nation’s capital. In that power vacuum, they’ve done the best they could, but it’s unraveling now because they’re getting no help from politicians who’ve so rigged the system that they no longer have to take responsibility for anything that happens.
What it boils down to is we’re all on our own, just like the now-floundering Fed. Likelihood is that today’s announcement will soft peddle the timing and frequency of further interest rate hikes. But if the Fed holds on to it’s 4 rate hike promise for 2016, markets won’t be able to put on short positions fast enough and blood will be running on Wall Street by the closing bell.
(UPDATING: It’s 2 p.m. and markets are waffling around the unchanged point. Reason why is that the just released Federal Reserve Open Market Committee (FOMC) statement seems to be saying nothing at all about its next interest rate hike. Obviously, the rate won’t be hiked now. But no guidance whatsoever–at least upon first reading–is offered as to what to expect next, save for antiseptic text that hedges bets on current market conditions. It remains to be seen what traders will do with this “nothing sandwich” during the rest of Wednesday afternoon’s trading action.)
UPDATE 2: As of 3 p.m., an hour before the market’s closing bell, stocks have decided to take a dive and are currently at their lows for the day, with the Dow off nearly 200 points.
That odious, supercilious perma-bear Marc Faber—beloved of CNBC talking heads due to his perpetually acidic comments on world economies, most particularly that of the U.S.— put today’s markets in a reasonable perspective earlier today in another of his routine, puffer pigeon-preening offhand comments:
“The publisher of the ‘Gloom, Boom & Doom Report’ told attendees at the annual ‘Inside ETFs’ conference that the medium-term economic outlook has become ‘so depressing’ that he may as well fill a newly installed pool with beer instead of water.
Drinking up seems to be Dr. Doom’s only answer for investors to get through this market.”
Sounds like a good idea to us as well, though we prefer single malt Scotch. But we shall see. We’ll issue a brief update to this report when the smoke clears, sometime after 2 p.m. Hopefully, it won’t be all gloom, boom and doom. But in January 2016, one never knows.