A 'Dark Day' for Apple
A 'dark day' for Apple... Shares plunge 10% on sales warning... Don't be too quick to blame China... Is that it for the Fed's rate hikes?...
It's been a rough couple of months for Apple (AAPL) shareholders...
Since reporting another record quarter last November, shares of the consumer-electronics giant have been in freefall. As we reported at the time, the company's excellent earnings report was overshadowed by a few "less positive" developments. From the November 5 Digest...
First, the company said it sold significantly fewer of its flagship iPhone smartphones than Wall Street analysts had expected. Its latest quarterly records were driven primarily by higher iPhone prices, rather than a greater number of iPhone sales, as has typically been the case in the past.
The company also projected weaker-than-expected sales in the coming holiday quarter – which is typically its most important of the year. And it said it would no longer be reporting unit sales or average selling prices of its various products, including the iPhone, iPad, Apple Watch, and Mac, among others, giving the impression that Apple itself believes this trend could continue.
Unfortunately, the news hasn't gotten any better since...
In a surprise letter to investors last night, CEO Tim Cook confirmed that iPhone sales are slowing dramatically. As the Wall Street Journal reported...
Apple slashed its quarterly revenue forecast for the first time in more than 15 years, an unprecedented move in the Tim Cook era that was prompted by a downturn in sales of iPhones in China.
The surprise cut... renews concerns about waning demand for Apple's marquee product, the iPhone, which makes up the vast share of its revenue and has vaulted the company's value and profits. It also raises fresh questions about Apple's prospects in China, the world's largest smartphone market, which represents nearly 20% of Apple's sales.
And it was the latest sign of broader economic malaise in China, fueled by trade tensions with the U.S. "Lower than anticipated iPhone revenue, primarily in Greater China, accounts for all of our revenue shortfall," Mr. Cook said in his letter.
Cook placed the blame almost entirely on the continuing 'trade war' with China...
However, there may be more to the story here.
First, the Journal also notes that Apple's share of the Chinese smartphone market has been shrinking, while those of Chinese competitors like Huawei Technologies – which have introduced newer, high-tech phones at relatively lower prices – has climbed.
Meanwhile, other U.S. retailers don't seem to be having the same difficulties. As financial-news network CNBC reported this morning...
Lululemon and Nike have cited China as a bright spot in recent earnings reports. Nike sales there grew by 31% during the company's fiscal second quarter that ended November 30.
"Now, while there has been uncertainty of late regarding U.S.-China relations, we have not seen any impact on our business," Chief Financial Officer Andy Campion told analysts on a conference call last month. "Nike continues to win with the consumer in China."
In other words, Apple's woes may have less to do with the trade war than with the increasingly expensive iPhone itself...
At a price tag of more than $1,000 – yet boasting few "bells and whistles" that can't be found on countless cheaper alternatives today – the latest iPhone may no longer be the "must have" item it once was.
Regardless, Wall Street didn't like the news. Nearly half of the 41 analysts surveyed by market data firm FactSet slashed their price targets in response, some by as much as $100. Wedbush analyst Daniel Ives – who was among them – summed up the thinking in a note this morning...
Last night Apple delivered a bombshell negative preannouncement that will be a defining moment for Cook & Co. for years to come.
Although the company had some soft quarters over the past 20 years that missed Street expectations, in the modern iPhone era last night was clearly Apple's darkest day in our opinion and represents a challenging growth period ahead for the company (and its investors).
Apple shares plunged 10% today, closing below $145 for the first time since mid-2017. They've now fallen nearly 40% since hitting an all-time high above $232 in October.
This time last month, pundits were debating whether the Federal Reserve would hike short-term rates two or three more times in 2019...
But if the fed funds futures market is any indication, the discussion could soon turn to when the central bank will begin cutting interest rates again. As the Financial Times reported today...
[Futures traders] are now pricing in a greater probability that the Federal Reserve will cut rates than raise them in 2019, highlighting the rising fears that the economic slowdown could deepen into an outright recession.
Traders have been ratcheting up bets that the US central bank will not be able to raise interest rates the two times it indicated it planned for 2019 as recently as the December meeting... [T]he Fed Funds futures market – where traders can speculate on where interest rates are heading – now indicates that investors think there is no chance the Fed lifts rates in 2019.
Moreover, the implied odds on the Fed actually reversing rates and cutting rates from the current 2.25%-2.5% corridor has jumped to nearly 30%, up from almost zero when the market turbulence began this autumn.
In short, just one month ago, the market believed there was a 70%-plus chance of at least one more rate hike this year. Today, it believes there's a nearly 40% chance of at least one rate cut.
We certainly hope that isn't the case...
With short-term rates still historically low at just 2.5%, the Fed has never had less "ammo" to respond to a slowdown than they do today. The next rate-cutting cycle may not be as bullish as many investors likely expect.
New 52-week highs (as of 1/2/19): none.
In today's mailbag: Heaps of praise and several complaints. How have we helped – or disappointed – you? Let us know at feedback@stansberryresearch.com. Good, bad, or ugly, we read it all.
"I applaud you for taking time off over the holidays to rejuvenate yourselves and spend time with your families. But I sure do miss you while you're gone! Welcome back and Happy New Year." – Paid-up subscriber Paul H.
"I just wanted to take a moment to wish you, your family, and our family at Stansberry a very happy and prosperous new year! You all have become an integral part of our everyday lives and you have yet to steer us wrong. These are trying times for us these days, but cool minds prevail and that is what Doc, Steve, Porter, and all of the staff at Stansberry have been providing us... even when the markets were rejoicing new highs almost on a monthly basis! Cool minds lead to calculated and intelligent decisions.
"You guys are awesome and I wish all of you and your families the best in 2019! Thank you again for your honesty, integrity and all of the laughs along the way! You are the best! Happy New Year!" – Paid-up Stansberry Alliance member Al B.
"Porter, I have to tell you how impressed I am at your 'My word is my Bond' approach to Stansberry Research. Your company is doing so many new and very creative things, and yet you continue to honor the lifetime Alliance folks.
"I joined the Alliance now about 3 years ago and have always wondered if the lifetime members would really see the new creative things Stansberry was doing and going to do. Well, I am a beta reviewer on your new Stansberry Terminal and it is awesome. I just [bought] several of the American Moonshots recommendations, and did some serious reading on the new Advanced Options opportunity. All included in my lifetime Alliance subscription.
"I do belong to some other 'lifetime' subscriptions but they cherry pick which [services they include]. Thank you for being a man of your word. It means more than any amount of money. I will always be with you. Thanks much. Best regards." – Paid-up Stansberry Alliance member Terry P.
"I enjoyed [Wednesday's] Digest tremendously. I agree with everything that was said... One additional comment I would like to make is that all major averages are below their respective 20-month moving averages. I shorted stocks and bought long put options and had a profitable year... Traders must be willing to play both sides of the market." – Paid-up subscriber Rajat S.
"The reason a lot of your readers sat on their stocks and ignored the Oct-Dec collapse as you are well aware of, was due to Steve Sjuggerud's 'Melt Up' thesis! This is something you had multiple updates on, telling us to invest in stocks, as the rally was not over yet.
"Stop giving us conflicting advice on this and open up with Steve explaining why his thesis was wrong for the last three months and my portfolio dropped 15%, when if I had followed my stops, I'd be sitting 100% in cash right now!" – Paid-up subscriber Kenny M.
Brill comment: Kenny, your e-mail brings up a couple of important points...
First, regarding our "conflicting" advice, we understand your frustration. But rest assured, there is nothing nefarious going on here.
As we often explain, Stansberry Research is a completely independent investment research firm. What this means is that unlike at some other firms, our editors work only for you, our dear subscribers. They aren't beholden to advertisers, the companies they're analyzing, or anyone else. No one – not even Porter himself – tells them what to write.
As a result, this means our analysts sometimes have differing opinions. Despite complaints from subscribers who would prefer we all parrot the same viewpoints, we believe this is one of Stansberry Research's greatest strengths. As Porter often says, it's what we would want if our roles were reversed.
Today, Steve remains bullish. As he recently explained in the December 21 Digest, despite the recent sell-off, he still expects the "Melt Up" will resume this year. However, some of our other analysts – including Porter and the Stansberry's Investment Advisory team, Dr. David "Doc" Eifrig, and Extreme Value editor Dan Ferris – have become more cautious of late.
Here in the Digest, our job is a little different. As a free daily e-letter for all Stansberry Research subscribers, we don't make official recommendations. Instead, our primary aim is to help you keep up with important market developments, as well as highlight the best research and recommendations from all of our paid services.
Of course, we also share our own opinions in the Digest from time to time. And here, too, these views may sometimes differ from those of the other editors we mention. In this case, while we have continued to provide updates on Steve's Melt Up thesis for Digest readers, we have also been clear that we have personally become much more cautious on the market as well.
Again, you might prefer if we all "toed the company line," but we simply wouldn't be doing our jobs if we did.
However, none of this is a valid excuse for "sitting on your stocks," as you imply. No one at Stansberry Research has ever recommended ignoring your stop losses. Even as bullish as Steve has been, he has been crystal clear that maintaining strict position sizing and stop losses are critical for anyone investing in the Melt Up.
We understand the losses in the Melt Up portfolio to date are disappointing. But if you followed Steve's advice, they should represent only a small percentage of your total portfolio.
"What happened to the great Melt up? I waited for a sell signal from Stansberry and never received it. Disappointing..." – Paid-up subscriber Susan K.
Brill comment: As we explained above, the reason you didn't receive a "sell signal" from Steve is that he hasn't issued one yet. If (or when) that changes, you can bet that Steve will let his subscribers know immediately.
"Where are the grades on the Stansberry investment letters? Grades from A+ to F? I did not see any this year but did last year." – Paid-up subscriber John J.
Brill comment: Don't worry, John. We'll be publishing our annual Report Card just as we've always done. Look for it in the Digest later this quarter.
Regards,
Justin Brill
Baltimore, Maryland
January 3, 2019