Daily Markets: Apple, Amazon Earnings Set the Tone as Week Closes Out

Today’s Big Picture

As we round out a busy earnings week, after hitting new record highs yesterday, U.S. equity indices look to open in negative territory following disappointing results from Apple (AAPL) and Amazon (AMZN). The major indices in Asia-Pacific closed mixed today following those two big misses yesterday. The gainers on the day include China’s Shanghai Composite which rose 0.8%, the Shenzhen Component added 1.5% and Japan’s Nikkei 225 closed 0.3% higher. Those that closed lower include Hong Kong’s Hang Seng, which lost 0.8%, South Korea’s Kospi fell 1.3%, and Australia’s ASX 200 fell 1.4%. By midday trading, the major European indices were all in the red, and U.S. equity indices point to a drop at the open.

Our suggestion to readers is to get some rest this weekend, for next week brings even more corporate earnings reports, a number of October economic data points as we enter November, including the October Employment Report, and the Fed’s next monetary policy meeting. While some will be asking if it’s “taper time,” others will be waiting to see how big the taper bite size will be? More on all that next week!

Data Download

International Economy

Japan’s unemployment rate for September remained at 2.8%, as was expected. Industrial production in the nation fell more than expected, dropping 5.4% MoM, after falling 3.6% MoM in August and compared to expectations for a 3.2% MoM decline. Consumer Confidence rose slightly to 39.2 in October from 37.8 in September.

Retail sales in Australia rose 1.3% MoM in September after falling 1.7% in August.

This morning brought a slew of Q3 GDP data from Europe which was a mixed bag, but on the whole came in stronger than expected:

• France’s economy grew more than expected at 3.0% QoQ in Q3, according to preliminary estimates, up from its 1.3% QoQ pace in Q2 and compared to expectations for a 2.1% QoQ pace.
• Spain’s economy grew less than expected at 2.0% QoQ in Q3 and 2.7% YoY in Q3 compared to 1.1% and 17.5% pace in Q2 respectively. Expectations were for a 2.7% QoQ and 3.5% YoY expansion. The economy remains about 6.6% below Q4 2019 levels.
• Germany’s economy grew less than expected at 1.8% QoQ in Q3 and 2.5% YoY in Q3 compared to 1.9% and 9.8% in Q2 pace respectively. Expectations were for a 2.2% QoQ and 2.5% YoY expansion. Overall output remains 1.1% below the level from Q4 2019.
• Italy’s economy grew more than expected at 2.6% QoQ in Q3 and 3.8% YoY in Q3 compared to 2.7% and 17.0% pace in Q2 respectively. Expectations were for a 2.0% QoQ and 3.0% YoY expansion. Its output gap is now 1.3% below Q4 2019. The ratings agency S&P has revised Italy’s outlook from stable to positive.
• The Eurozone’s economy grew more than expected at 2.2% QoQ in Q3 and 3.7% YoY in Q3 compared to 2.1% and 14.2% pace in Q2 respectively. Expectations were for a 2.0% QoQ and 3.5% YoY expansion. The increase was driven by a 23.5% increase in energy prices. Food, alcohol, and tobacco prices were up much less, just 2.2%. Industrial goods were up 2% and services just 2.1%.

We also got a bunch of data on inflation from Europe, all of which rose more than expected:

• France’s inflation rate rose more than expected in October at 2.6%, up from 2.2% in September, versus expectations to accelerate to just 2.5%.
• Italy’s inflation rate rose more than expected in October at 2.9% from 2.5% in September, versus expectations to accelerate to 2.6%.
• The Eurozone’s inflation rate rose more than expected at 4.1% YoY in October, a new 13-year high, from 3.4% in September, versus expectations for just a 3.7% YoY pace.

Domestic Economy

Yesterday’s first estimate for Q3 GDP growth came in at 2.0% annualized, which was weaker than consensus estimates for 2.6% but better than the Atlanta Fed’s GDPNow of 0.2%. Not that long ago consensus was closer to 6.0% or higher. This is the first estimate, so we will likely see some changes, but digging into the details there is something for everyone, bulls and bears included.

Bears will point out that real final sales contracted fractionally -0.1%, and without state and local government spending, inventory build, and the IP spending estimate, real GDP would have been a 1.2% contraction (annualized). Bulls will focus on that without the drag from the auto sector supply constraints, real GDP would have been over 4.5% annualized.

Looking at the third quarter PCE price index, it implies that September core PCE will have risen just 1.5% annualized. That would be the slowest pace since the end of 2020 and gives support to Team Transitory on the inflation front.

Weekly initial jobless claims fell to a fresh 19-month low of 281k for the week ending October 23. The four-week moving average of initial claims has dropped below 300 for the first time since March 2020.

Pending home sales in the U.S. were down 8% YoY in September following an upwardly revised 8.4% YoY decline in August and have now been down YoY for four consecutive months. Sales were down 2.3% MoM in September after an 8.1% MoM increase in August.

Yesterday also brought the Kansas City Fed, the fifth and final regional Fed manufacturing survey, which saw the index tie with April for a record high at 31 after the largest 1-month uptick since August 2020. For the composite of all five regions, It was a record month for both employment and delivery time, while the overall composite is in the 98th percentile of all periods. Delivery times are at a record high and manufacturers do not expect material easing in the coming months.

Later today we will get Personal Income & Spending for September, PCE Price Index, Employment Cost Q3, Chicago PMI, Michigan Consumer Sentiment

Markets

Despite a weaker-than-expected, according to consensus estimates, third quarter GDP, equities continued their bull run yesterday. The Nasdaq Composite and the S&P 500 both hit record highs, up 1.4% and 1.0% respectively. This was the first new high for the Nasdaq since September 7. The Dow also rose, adding 0.7% while the small cap Russell 2000 added 2.0%. All 11 S&P 500 sectors closed in positive territory, but growth came in ahead of value and cyclical. The 2-year Treasury yield fell to 49 basis points, the 10-year rose to 1.58%, and the long bond to 1.97%.

Stocks to Watch

Earnings Announcements & Guidance

Before U.S. equity markets open this morning, AvvBie (ABBV), Chevron (CVX), Church & Dwight (CHD), Colgate Palmolive (CL), Exxon Mobil (XOM), and Lazard (LAZ) are among those expected to report their quarterly results.

Shares of Apple are retreating this morning following last night’s mixed September quarter results that saw the iPhone maker meet consensus EPS expectations despite the rare revenue miss. On a YoY basis, Apple’s revenue climbed 29% for the quarter. While iPad and Services revenue topped expectations, that was not the case for the company’s iPhone, Mac, and Wearables and Home segments, with the biggest miss coming at iPhone. That is reverberating through the supply chain and will likely see shares of Qualcomm (QCOM), Skyworks Solutions (SWKS), Qorvo (QRVO), Broadcom (AVGO) and others come under pressure today.

According to CEO Tim Cook, the company's results were hit by a $6 billion impact from shortages in its supply chain, and lingering effects of the Covid-19 pandemic. And while demand remains “very strong,” the situation won't resolve itself by the end of the year, and that the supply chain impact will be larger than the $6 billion the company saw in its fourth quarter. Despite the deepening supply chain shortage, Cook shared the company sees "very solid" revenue growth in the current quarter compared to last year despite the deepening supply shortage and offered Apple will have an "all-time record quarter" for the end of the year.

Amazon also reported top and bottom misses relative to consensus expectations for its September quarter despite posting double-digit year over year growth in each of its business segments. While overall revenue missed expectations of less than $1 billion on a reported $110.8 billion quarter, the real issue for the company was on the cost side of its business. Hitting Amazon’s bottom line were an estimated $2 billion in operating costs during the quarter due to cost of labor, labor-related productivity losses and cost inflation. And yes, Amazon sees those pressures not only continuing in the quarter but having a larger impact near $4 billion.

At the same time, the company continues to invest for future growth and targets doubling the size of its fulfillment network over the two-year period since the start of the pandemic. This is likely in support of what’s expected to be super-same day or sub-one day delivery. For the current quarter, Amazon sees revenue of $130-$140 billion, which implies QoQ growth of 17%-26%, and operating income of between $0-$3 billion vs. $6.9 billion in the year ago quarter.

Rounding out the key focus of quarterly earnings last night, September quarter results at Starbucks (SBUX) also modestly missed revenue expectations but the company matched the consensus EPS forecast of $1.00. Despite the modest revenue miss, the company’s top line rose just over 30% YoY spurred on by global comp store sales growth of 17% with a 15% increase in transactions and a 2% increase in average ticket. U.S. comp store sales rose 22% while International rose 3% and China comp sales fell 7%. During the quarter, Starbucks opened 538 net new stores, ending it with a record 33,833 stores globally - 51% of stores are company-owned and 62% of them are in either the U.S. or China.

In the coming year, the company sees revenue between $32.5-$33 billion vs. the $32.1 billion consensus, but its EPS guidance calls for at least a 10% increase from $3.10, which suggests “at least” $3.40 vs. the $3.71 consensus. Weighing on that outlook are recently announced “wage investments” that will see the company boosting its U.S. hourly wage to ~$17 by summer 2022. Looking to shore things up, Starbucks also announced its commitment to $20 billion of share repurchases and dividends over the next three years in what is expected to be 2/3 buybacks and 1/3 dividends.

Facebook (FB) Chief Executive Mark Zuckerberg used his keynote address at the company's Connect conference Thursday to unveil the social-media giant's new corporate identity: Meta. Meta will begin trading under the ticker symbol MVRS on Dec. 1. Also, during his keynote, Zuckerberg also delivered updates about several company products, including Oculus Quest headsets and new fitness offerings that take advantage of virtual reality technologies.

Toyota Motor (TM) reported its January-September 2021 worldwide sales fell 20.3% YoY, and its vehicle production dropped 15.3% for the same period. COVID-19 and supply chain issues that caused a parts shortage were fingered as the root cause.

IPOs

The Geely-owned Swedish carmaker, Volvo Cars, began trading today on Nasdaq Stockholm, pricing at SKr53. Early trading saw share rise nearly 10%. The company’s Chinese owner Geely retains around four-fifths ownership, but was last week forced to convert its vote-heavy shares into normal shares after potential Swedish investors protested heavily. The company has raised $2.4 billion through the IPO and reportedly is planning to use most of the funds for its push into electric vehicles as part o its pledge to stop selling combustion cars by 2030.

American massive open online course provider Udemy (UDMY) priced its 14.5 million share IPO at $29.00, the high end of the $27-29 expected range.

For more, visit Nasdaq’s Latest & Upcoming IPOs page.

M&A Activity

Reports indicate Coca-Cola (KO) is close to buying a controlling stake in sports drink company BodyArmor in a deal that values the company at ~$8 billion. The move would bolster Coke’s hydration and sports related offering against PepsiCo’s (PEP) Gatorade.

After Today’s Market Close

After the plethora of earnings reports this week, we are thankful there are no companies expected to report their quarterly results after today's close. Those looking to get a jump on the earnings reports to be had in the coming days should visit Nasdaq’s earnings calendar page.

On the Horizon

• November 1: Markit and ISM Manufacturing PMIs, Construction Spending
• November 2: Total Vehicle Sales, IBD/TIPP Economic Optimism, API Crude Oil Stock
• November 3: ADP Employment Change, Markit Services & Composite PMIs, ISM Non-Manufacturing & Composite PMIs, Factory Orders, Federal Reserve Interest Rate decision
• November 4: Balance of Trade, Unit Labor Costs, Nonfarm Productivity, weekly jobless claims
• November 5: Non-Farm Payrolls, Unemployment Rate
• November 9: PPI, API Crude Oil stock change
• November 10: Inflation, Weekly jobless claims, Wholesale inventories, EIA Crude and Gasoline stocks, Monthly budget statement
• November 12: JOLTs report, Michigan Consumer Sentiment

Thought for the Day

“Winter is an etching, spring a watercolor, summer an oil painting, and autumn a mosaic of them all.” ~ Stanley Horowitz

Disclosures

• Qualcomm (QCOM), Skyworks Solutions (SWKS), Qorvo (QRVO), Broadcom (AVGO) are constituents of the Tematica BITA Digital Infrastructure & Connectivity Index
• PepsiCo (PEP), Starbucks (SBUX) are constituents of the Tematica Research's Thematic Dividend All-Stars Index.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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