Can Apple Save the Tech Sector?!
The official July employment report and earnings numbers of Apple (AAPL) are expected to be the big events in the market this coming week. The quick and surprise negative reversal on Thursday is one of the warning signals for the tech sector – chock full of expensive stocks – technical analysts now goading investors not to ignore their high valuations. The large indexes ended the week mixed, the S&P 500 and the NASDAQ closing lightly down, the Dow Jones, though, rising 1% to a new all-time high.
The end of last week gave us keen insight into the powers at play in the market. The good news was that the bears didn’t succeed in building more negative momentum after investors’ response to Amazon’s disappointing earnings report, its stock following suit by plunging 2.5%. The bad news is that the market showed no signs of life, “correction buyers” running for cover. In other words, buyers felt no urgency to pop up and buy the weakness.
The earnings season will also be in full stride this week. After the market’s negative reaction to the reports of Amazon (AMZN), Google (GOOGL) and a number of semiconductor stocks, it’s rather clear that there’s a larger risk of “selling the news” than there had been in the past.
This month’s most important economic event will be the official July employment report which will be released this coming Friday, the report honing in on the state of the workforce. Before that, though, the numbers reported by Apple (AAPL) will be followed carefully. A crack or fissure developed in tech stocks’ rally last week, the NASDAQ recording a quick and ugly reversal on Thursday after having traded at new historic highs earlier on the very same day! What technical analysts see on the NASDAQ daily chart is an engulfing pattern – and their advice, “Don’t ignore it!” In essence, the worry revolves around the fact that Thursday’s trading broke out the upper and lower limits of the previous trading day, the NASDAQ falling a full 2.5% from the daily high to the daily low. That’s something significant, history showing that 70%-80% of the time, if short shrift is made of this phenomenon, you wind up getting burned!
Technical analysts see potential for a further selloff on the NASDAQ – which has traded up a whopping 19% year-to-date. A beam of light is now honing in on the tech sector, precisely on the eve of Apple’s financial release, Tuesday after closing, the expectations from the iPhone maker being high. The company is still the largest by market cap, and its weight on both the S&P 500 and the NASDAQ is heavier than any other. Apple has maintained its cult following on the market and among consumers. Analysts’ consensus is for Apple to report Q2 earnings growth of 11%, with revenues expected to climb 6% to over $44.8 billion.
Washington will continue to be in focus after a week of desperate failures. The inability of the Senate to push through Republican’s health care bill added to concerns that Donald Trump’s agenda has hit a standstill. Another concern beginning to percolate into investors’ consciousness has to do with the budget and the credit ceiling being the main items on Congress’s agenda when it returns from its recess at the end of September. The spectacle of the Trump administration’s bungled policy making apparatus this past week only came to highlight that the chance that the budget – and a lifting of the credit ceiling – can be passed relatively easily, is negligibly small. The rise in bond yields and the continued drop in the dollar only come to show the disquiet that’s yet to surface in the stock market. The dollar fell another 0.6% last week, having fallen sharply by 2.4% for the month of July.
The July employment report will be key for financial markets and an important signal for the Federal Reserve which hopes to start lowering its balance sheet come September by cutting its bond-purchasing which harkens back to 2008 when the central bank sought to stabilize and support the economy. The Fed even noted at the end of its 2-day meeting last week that the lack of inflation in the economy is a reason for worry, meaning that the employment report’s wage figures will also be eyed carefully. Until now, wage gains this year were moderate. July’s employment figures are expected to show an uptick of 187 thousand new jobs, a decline from June’s 222 thousand. The unemployment rate is expected to fall to 4.3%.
Besides Apple, about one-fifth of the firms on the S&P 500 will be reporting this coming week. The earnings season until now has been good, but stocks will now be put to the test given that they are now fully priced. A stock that doesn’t provide the goods is set to get the boot! This season, the bar has been raised, and it seems that companies need better and better numbers to appease investors. The market’s now thirsty for blood after the tech sector saw a number of big misses. Apple could be next in line to experience the market’s wrath, not that its numbers are expected to be poor, but appeasing investors has become a daunting task!
Have a great trading week!
|Monday||10:00||Pending Home Sales||–||Medium|
|Wednesday||8:15||ADP Employment Change||–||High|
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