Ben Ridgeway Ben Ridgeway
Sales Trader, Client Trading Services, Saxo Capital Markets
15 October 2014

Can Apple earnings stem broad US market sell-off?

Much of earnings season has so far been overshadowed by macroeconomic events as fears of an economic slowdown weigh heavily on US markets. Can Apple's latest earnings report, due on October 20th, give US markets a necessary boost?
​​​​​​​The earnings season in the US is upon us at a time when equity indices worldwide are moving on incredibly shaky ground. Beginning in traditional fashion with the positive release from large aluminium producer Alcoa Inc. (AA:xnys), for the fiscal quarter ending in September, it could be said that earnings season 2014 has been somewhat overshadowed so far by significant movements in the Dow Jones Industrial Average (DJI.I). The Dow traded at approximately 16,994.0 as the season began on October 8th, but has experienced volatility and a large sell-off. By Wednesday, October 15th the index lost more than 600 points in a week.

As the earning season starts gaining momentum, investors will be keeping an eye on both macro and micro news in order to read stock markets in the US correctly. So far fundamental concerns about the health of the global economy, rather than company earnings, seem to be the main driving force behind the recent decline in markets. On October 7th, the International Monetary Fund released its biannual World Economic Outlook, cutting its global growth forecasts for 2014 by 0.4% and 2015 by 0.2%. The following day minutes from the Federal Market Open Committee’s latest meeting revealed that policymakers were concerned with aggressive USD buying in response to the risk of a global slowdown.

iPhone 6 sales key to Apple earnings

One large US company that is known and for the most part loved by all, Apple Inc. (AAPL:xnas), will focus attention when earnings are released after market close on October 20th. On Tuesday, October 7th the share price ended the session down 1.06% to close at $98.75, previously having pushed through the $100.0 mark in mid-August. Excluding dividends the company share price has gained approximately 50% each year since 2003.

Sales of Apple's new iPhone 6 will be key to the company's performance this year after the new iWatch release is moved to 2015. Photo: Shutterstock

Earnings per share are expected to come in at $1.30 and if exceeded, as has been the case traditionally, may be likely to push that price back through the $100.0 level, potentially bringing US indices higher with it. 

The forthcoming earnings release includes the first weekend of iPhone 6 and iPhone 6 Plus sales which topped over 10 million when launched in the US, Australia, Canada, France, Germany, Hong Kong, Japan, Puerto Rico, Singapore and the UK. It should also be noted that the product became available in twenty more countries by the end of September, whilst interest will possibly be even greater regarding earnings release for the fourth quarter of 2014 when it will include iPhone 6 and iPhone 6 Plus sales in a total of 115 countries, including China. The eagerly anticipated iWatch is due to begin rolling out worldwide in early-2015. The past, present and future may be sparkling for Apple Inc.

Surprises to the upside regarding this and other US companies during the current earnings season may be necessary in order to stem broad selling. This bearish flow has been triggered not so much by the domestic economy in the states but most evidently the financial landscape in Europe and not the emerged but the emerging markets. As a result, there are potentially conflicting moods affecting US equities from the domestic and global economies. Apple Inc. is available to trade as a stock and CFD, and also as an exchange traded option (AAPL:xcbf).​

Citi leads banking sector winners

Tuesday, October 7th saw the first real evidence of earnings season making an impact on US equity indices. Despite lower than expected results released by JP Morgan Chase Co. (JPM:xnys) and Wells Fargo & Co. (WFC:xnys), leading those individual stocks to lose 0.29% and 2.73% respectively, it was fellow banking giant Citigroup Inc. (C:xnys) that buoyed the stock markets in the US. A 13% rise in income, compared to the third quarter of 2013, saw its share price rise by 3.15% yesterday, as the bank announced a shift in strategy that would lead it to cut its operating footprint from 35 to 24 countries. 

On Tuesday's close, both main US indices ended steady after the previous woes, showing a direct reaction to what was a day of mixed data dominated by US banks’ third quarter earnings. However, it remains to be seen whether the current earnings season will shift market attention from wider global issues to a more micro, company specific focus.

Should sentiment trigger a broad equity rally at some point over the next few weeks, a poor earnings release may not weigh so heavy on the shares of reporting companies. Key release dates may prove to be the more significant factor, so ticking these on the economic calendar is important. 

Within the SP500.I, it is these financial stocks that may appear more likely to print with upside surprise, although this is by no means certain. Specifically, the insurance sector looks to have enjoyed some buoyancy in the third quarter of this year. The Allstate Corp. (ALL:xnys), ACE Ltd. (ACE:xnys) and the Travelers Companies Inc. (TRV:xnys), all release earnings in the near future.

Within the healthcare sector in the US, positive figures with regards to earnings per share are also considered more likely to seen during this earnings season. Conversely, with commodity markets suffering it should come as no surprise that the energy sector companies may be most likely to suffer. Range Resources Corp. (RRC:xnys) and Noble Energy Inc. (NBL:xnys) are all within the hard-hit oil and gas production industry but may yet surprise the market.

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