Apple Soars But Tariff Fight Spoils the Party

When a very much alive Mark Twain read his obituary that a major newspaper had mistakenly printed, the great American humorist quipped: “Reports of my demise are greatly exaggerated.”

You could say the same about FAANG stocks.

Thanks to strong operating results from FAANG member Apple (NSDQ: AAPL), most of the beleaguered quintet rose today, as did the tech-heavy Nasdaq.

However, renewed trade clashes drove the Dow Jones Industrial Average and S&P 500 lower. The broader markets at first opened sharply higher on Apple’s solid report card, but tit-for-tat tariffs intruded and ruined the party. Industrial stocks were among the biggest losers.

Apple shines…

Apple delivered a strong fiscal third-quarter earnings report after the closing bell Tuesday. On a year-over-year basis, earnings per share (EPS) increased by 40% and revenue increased by 17%.

Results beat expectations on the top and bottom lines. EPS came in at $2.34 compared to expectations of $2.18. Revenue reached $53.3 billion versus $52.34 billion.

Sales of the iPhone came in at 41.3 million, below expectations of 41.79 million, but the average selling price continued to climb.

Apple’s results arrived less than a week after Facebook’s (NSDQ: FB) dismal quarterly results triggered a rout in the tech sector. AAPL shares today rose 5.89%, pushing the company closer to a $1 trillion market cap.

Three of the other FAANGs — Amazon (NSDQ: AMZN), Netflix (NSDQ: NFLX), and Google parent Alphabet (NSDQ: GOOGL) — all rose, by 1.11%, 0.28%, and 0.47%, respectively. Facebook, which still grapples with privacy concerns, edged down 0.54%. The benchmark Technology Select Sector SPDR ETF (XLK) rose 0.87%.

Today’s FAANG resurgence proved that they’re still alive and kicking. That said, the trend away from mega-cap momentum stocks toward value is growing more pronounced, as investors rightfully grow more cautious about the risks ahead.

The dogs of trade war…

China asserted Wednesday that “blackmail” wouldn’t work and that it would strike back if the U.S. takes further protectionist steps. The White House is considering the imposition of a 25% tariff on $200 billion worth of Chinese goods.

The latest Trump administration proposal would boost the potential tariff rate from the 10% initially put forward on July 10. The tariffs target thousands of Chinese imports, including steel and aluminum.

China has accused Trump of launching the “largest trade war in economic history.” The president has cried havoc and let slip the dogs of trade war. And havoc is what we’re seeing.

According to research firm Oxford Economics, the escalating trade war could cost the global economy $800 billion, or 4% of global trade (see chart):

Business groups, many of them supporters of Trump during the 2016 election, have condemned his tariffs. Most members of Congress on both sides of the aisle also oppose them.

But Trump has dug in his heels. The president yesterday lashed out at the conservative billionaire Koch brothers, who support Republican causes but oppose tariffs. Trump dismissed the Kochs as “globalists.”

Trump’s protectionist rhetoric will probably get more inflammatory, to appeal to his base as the midterms loom. Trade volatility will persist until at least the November elections are over. Trump has also slapped hefty levies on European, Canadian and Mexican steel and aluminum.

Wall Street views protectionism as a threat to global growth. Those fears were further confirmed Wednesday in a new survey of factory activity.

IHS Markit’s July final manufacturing Purchasing Managers’ Index showed that euro zone manufacturing growth remained muted in July, largely due to tariffs.

The index only inched up to 55.1 from June’s 18-month low of 54.9. It was the second weakest number for more than 18 months.

Inflation across the euro zone was 2.1% in July, above the European Central Bank’s target of slightly below 2%. The rising cost of inputs due to tariffs already is affecting a broad range of products.

The Federal Reserve’s Federal Open Market Committee (FOMC) concluded two days of meetings today and announced that it would stand pat on interest rates for now. The FOMC did say, though, that inflation was nearing its 2% target and another rate hike was likely in September.

Amid today’s mix of good and bad news, Wall Street’s initial celebration over Apple quickly turned sour. The consumer tech firm was the only thing that kept the Dow from having a truly worse day.

As Leslie Gore sang: “It’s my party, and I’ll cry if I want to.” Let’s do the numbers.

Wednesday Market Wrap

  • DJIA: 25,333.82 -81.37 (0.32%)
  • S&P 500: 2,813.36 -2.93 (0.10%)
  • Nasdaq: 7,707.29 +35.50 (0.46%)

Wednesday’s Big Gainers

  • Container Store Group (NYSE: TCS) +44.49%

Storage products retailer beats on earnings.

  • Quad/Graphics (NYSE: QUAD) +20.57%

Marketing services provider beats on earnings.

  • Pandora Media (NYSE: P) +14.39%

Music delivery platform lures more subscribers in Q2.

Wednesday’s Big Decliners

  • InnerWorkings (NSDQ: INWK) -30.02%

Marketing software developer posts net quarterly loss.

  • Criteo (NSDQ: CRTO) -19.14%

Digital performance marketer issues downside Q3 guidance.

  •  NewLink Genetics (NSDQ: NLNK) -16.14%

Biotech posts earnings loss, gets downgraded.

Letters to the Editor

“Instead of purchasing physical gold or silver, should I consider mining stocks and funds?” — Dean J.

Buying and storing physical gold or silver can be an expensive hassle; mining stocks and funds are more appealing. What’s more, miners are leveraged to precious metals prices. On average, precious metals mining stocks move 2% for each 1% change in the price of the metal.

Let’s assume that a gold miner can produce one ounce of gold at a cost of $600. At today’s gold price of about $1,220/oz, the company’s profit is $620/oz. Of course, gold miners also underperform on the downside.

Some precious metals funds are pegged to the price of the respective metals; others contain baskets of mining stocks. Regardless, funds are safer and easier ways to gain exposure to the yellow and white metals.

Questions about portfolio hedges? I’m here to help:

John Persinos is the managing editor at Investing Daily.