What to know today

  • The benefit of time. 
  • Amazon has an AI story too. 
  • Do you doubt Apple?

The Fed Can Afford To Wait

The inflation-and-growth story is still unfolding.

Unless the S&P 500 can pull off a greater than 2.7 percent rally today, the index is going to close in the red for April and end a streak of five straight positive months.

That’s OK. We did follow the historical pattern for the month, with a negative front half weighing too much for a late rally to overcome.

This mini-recovery is supported by strong earnings for Big Tech and other companies as well, the bulk of reporting season this time around lining up with a Federal Reserve quiet period.

That’s better than OK. That’s downright healthy. Indeed, the S&P 500 is demonstrating that it’s at least as sensitive to earnings and economic data as it is to interest rates and monetary policy.

The S&P 500 is at least as sensitive to earnings and economic data as it is to interest rates and monetary policy.

We’re counting down to the end of that quiet period, with the Federal Open Market Committee gathering today ahead of Wednesday’s policy announcement and press conference.

We’ll be interested to hear what Fed Chair Jerome Powell has to say about what is a complex array of inflationary signals, including unit labor costs and the status of the US dollar.

We’ll also want to know his thoughts on inflation expectations.

People like Neil Dutta of Renaissance Macro Research are pretty confident right now that inflation will be slowing into the end of the year.

The first quarter was “obviously strong for inflation, as we all know,” Dutta said to Bloomberg’s Tom Keene last week.

But real wages weren’t up much at all, and a lot of the forward-looking data Dutta looks at – including the quits rate and posted wages – suggest further cooling ahead.

The risk, according to Dutta, is the threat inflation represents to growth.

It’s been 10 months since the Federal Reserve announced its most recent rate hike.

It’s now been 10 months since the Fed’s last rate hike, and we have been waiting longer than usual for the first cut, with inflation’s persistence even inviting talk of not a cut but a hike as the central bank’s next move.

All things considered, if the Fed has nothing to do right now, that’s good. A healthy labor market and firm inflation will have that effect.

As Dutta noted, recent data reinforce Powell and company’s belief that they still enjoy the benefit of time.

deep dive

Amazon Is Up After the Close

Fair to say this AI capex race will continue.

Amazon.com $AMZN will put the fifth piece into “The Magnificent Seven” earnings puzzle for the current reporting season.

The image is already one of present health and future optimism, with the group leading a broad rally over the closing days of April.

The stock is up more than 18 percent in 2024 and more than 70 percent over the past year. AMZN will report first-quarter financial and operating results after the market closes today.

Wall Street expects AMZN to post double-digit revenue growth and earnings per share growth of greater than 100 percent.

Amazon.com $AMZN will report first-quarter earnings after the market closes on April 30.

People will be watching what management has to say about Amazon Web Services and the segment’s development and use of artificial intelligence, the state of play in the digital advertising space, and the impact of price hikes on third-party sellers.

“Generative AI may be the largest technology transformation since the cloud (which itself, is still in the early stages),” CEO Andy Jassy recently wrote in a letter to AMZN shareholders, “and perhaps since the Internet.”

Amid an emerging capex arms race among Big Tech names – Morgan Stanley $MS sees 44 percent year-over-year growth in 2024, up from 26 percent last year – that segment of AMZN’s commentary will be significant.

So far, investors, traders, and speculators are bullish on this spending boom, except maybe when it comes to Meta Platforms $META and Mark Zuckerberg. 

deep dive |
April 30, 2024

Amazon Is Up After the Close

information technology

A Bite at Apple

It’s still one of the strongest brands on Earth.

Apple $AAPL was up 2.5 percent on Monday, as investors, traders, and speculators position for the company’s fiscal second-quarter earnings announcement on Thursday.

The stock has suffered this year on soft iPhone sales data in China as well as pressure from regulators on antitrust issues and doubts from those in the know about its AI strategy.

From the Research Desk, though, we learn that Bernstein analyst Toni Sacconaghi is bullish and believes recent price action has created a buying opportunity for what remains a global icon.

Of course it doesn’t hurt that this is a company with a solid track record of surmounting similar hurdles and a huge pile of cash on its balance sheet.

According to Sacconaghi, AAPL “has derated significantly” amid slowing revenue growth and concern about its position in China. 

“We believe that Apple’s business prospects are largely unchanged,” Sacconaghi wrote in a research note, “and believe the pullback provides an attractive entry point.”

Sacconaghi raised his AAPL rating to “outperform” from “market perform” and reiterated his $195 12-month price target.

That represents potential upside of 12.39 percent from Monday’s close for AAPL, which is down 9.88 percent year to date.

Apple $AAPL is down nearly 10 percent so far in 2024 on slowing revenue growth and concerns about the iPhone’s position in China.

Seventeen houses rate AAPL a “buy” at these levels, another 13 rate it a “hold,” and two say it’s a “sell.”

One guy famous for taking positions in forever companies continues to hold a sizable stake even after seeing a greater than 500 percent rise in the shares during his holding period.

Warren Buffett, who started building his position in the first quarter of 2016, owns more than 900 million shares and 5.9 percent of AAPL, even after trimming his position in recent months.

Berkshire Hathaway's $BRK/A most recent 13-F filing with the Securities and Exchange Commission revealed the sale of 10 million shares during the fourth quarter, as Buffett reallocated resources to energy stocks including Chevron $CVX and Occidental Petroleum $OXY.

Sacconaghi expects AAPL to report revenue of $90.7 billion and earnings per share of $1.52 for the quarter. The analyst said people will be happy if management’s revenue guidance for its fiscal third quarter is above $80 billion.

“If it’s below,” Sacconaghi said, “it could act as a clearing event for the stock.”

And that kind of price action would be attractive to investors like Buffett.

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