The Fed's Stunning Reversal Is Complete
Some good news and some bad news from Apple... The Fed's stunning reversal is complete... Why today's 'dovish' announcement is an ominous sign... LAST CALL: Doc's urgent market briefing goes offline tonight...
iPhone maker Apple (AAPL) reported its latest quarterly results after the markets closed last night...
As regular Digest readers know, Apple unexpectedly warned of slowing sales earlier this month. Several other global firms have since done the same. So as you might expect, many folks were closely watching to see just how bad the company's results would be.
On the bright side, the company reported slightly better-than-expected overall sales and earnings per share ("EPS")...
Its quarterly revenue fell to $84.3 billion, a 4.5% drop from the same quarter in the previous year. But it was slightly higher than the analysts' recently lowered expectations of just less than $84 billion. Meanwhile, Apple's EPS rose to an all-time high of $4.18, just above expectations of $4.17. (Though we should note this is primarily the result of the company's ongoing share-buyback program. Its total earnings fell slightly to $19.97 billion.)
Other highlights included a new all-time high of 1.4 billion active devices, and record sales in both its "Services" and "Wearables, Home, and Accessories" divisions – which rose 19% and 33% respectively.
But not all the news was so positive...
As the company warned, sales of its flagship smartphone slowed dramatically, particularly in China.
Revenue from the iPhone fell 15% year-over-year to just less than $52 billion, the first time these sales have ever slowed during the holiday season. And Apple warned that iPhones sales during the current quarter are likely to miss Wall Street's expectations again, suggesting the China-led slowdown continues.
Also, while revenue growth in its Services business – which has been a bright spot over the past couple of years – remained relatively strong, it also may now be slowing. Until last quarter, this business had grown at better than 20% for six straight quarters.
And finally, despite assurances from CEO Tim Cook that "Apple innovates like no other company in the world," the reality is that the company hasn't introduced any groundbreaking new products in years. And there is little indication that it has any new products in its pipeline that can "move the needle" in the near future.
Still, it appears the market was expecting even worse...
Shares jumped nearly 7% to more than $165 per share in today's trading. However, they're still down roughly 30% since hitting an all-time high in early October.
The other big story of the day concerned the Federal Reserve...
This afternoon, the Fed wrapped up its January policy meeting. As expected, officials voted 10-0 to keep short-term interest rates unchanged, and made no immediate changes to its quantitative tightening ("QT") program.
However, the Fed's official statement – as well as Chairman Jerome Powell's press conference following its release – suggests the central bank has indeed had a dramatic "change of heart." As the Wall Street Journal reported...
The Fed's postmeeting communications marked a stark about-face from the decision it made just six weeks earlier – when it raised interest rates and penciled in two more rate rises for 2019.
The statement released after Wednesday's meeting of the Fed's policy-setting panel didn't offer any clues about the Fed's next moves, a sign that it may have reached the end of its recent rate-increase cycle. The Fed dropped explicit references to future interest rate-increases that have been in the statement since the central bank began lifting its benchmark rate from near zero in 2015.
"The committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near" the Fed's 2% target "as the most likely outcomes," the statement said. "In light of global economic and financial developments and muted inflation pressures, the committee will be patient as it determines what future adjustments to the target range for the federal-funds rate may be appropriate to support these outcomes."
And as we suspected earlier this week, the Fed also released new "guidance" about its QT balance-sheet reduction program. More from the Journal...
A separate statement on the balance sheet said officials had reached agreement on a critical operational matter – that will effectively require the central bank to maintain a larger portfolio of Treasury securities than had been expected when they began reducing those holdings 16 months ago...
Officials also revised earlier guidance "regarding the conditions under which it could adjust the details of its balance sheet normalization program," according to the revised statement.
In short, as Mark Grant, chief global strategist at investment bank B. Riley FBR, noted this afternoon, it's hard to imagine a Fed statement that was more "dovish" – or in favor of easy-money policies – than the one we saw today.
And again, this was just weeks after the Powell-led Fed reaffirmed the relatively "hawkish" and disciplined approach it had been following for the past 11 months.
The financial media broadly cheered the news...
But we suspect the celebration may be short-lived.
Remember, despite seven increases, short-term interest rates remain near their lowest levels in history. And following 15 months of QT, the Fed's balance sheet has shrunk by only 10% or so from its record highs.
In other words, even after three years of Fed "tightening," monetary policy remains historically easy today.
What does it say about the so-called "recovery" if after nearly 10 years, markets and the economy are still too weak to come off the Fed's "life support"?
We would argue it's anything but bullish.
In addition, while the Fed currently maintains that this is simply a "pause" in its tightening cycle, history suggests otherwise. Virtually every such pause over the past 60 years was soon followed by a new rate-cutting cycle... and the majority of cutting cycles have coincided with a recession and/or a bear market in stocks.
Of course, regular Digest readers know we're not alone in our cautious outlook today...
For the first time since this long bull market began, our colleague Dr. David "Doc" Eifrig has recently become concerned about the market, too.
Last week, Doc held a free online briefing to explain exactly why he's so worried, and the specific steps he recommends every investor take immediately to protect themselves.
If you missed it, you still have one last chance to watch a replay of this event. But please don't delay... Doc's briefing will be taken offline at midnight Eastern time tonight. Click here to watch it now.
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New 52-week highs (as of 1/29/19): Essex Property Trust (ESS), Franco-Nevada (FNV), Kirkland Lake Gold (KL), and Nestlé (NSRGY).
In today's mailbag: One of the most common gold questions we hear. Send your questions and comments to feedback@stansberryresearch.com. As always, we can't provide individual investment advice, but we do read every e-mail.
"I've been watching with interest the stealth bull market in gold. I believe it is now time to add more gold to my portfolio. I remember in the past you recommended a company that want to buy physical gold or silver bullion. They are trustworthy and have a reasonable markup above spot price. But, unfortunately, I can't seem to find their name in my records. Please help." – Paid-up subscriber Freddy C.
Brill comment: As we often remind readers, if you're in the market for physical gold and silver bullion, you must keep two important things in mind.
First, gold and silver bullion are simply commodities, so it makes no sense to overpay. You want to pay the lowest premiums over the "spot price" of the metals that you can.
However, there are some unscrupulous dealers out there. So be sure to do your homework and find a well-reviewed, reputable dealer you can trust.
If you aren't sure where to start, we recommend contacting the folks at Camino Coin or Gainesville Coins. If you're also interested in buying collectible gold or silver coins, we would suggest talking to Van Simmons at David Hall Rare Coins.
We receive no compensation for recommending these dealers. They just have a long history of treating Stansberry Research subscribers and colleagues well.
Regards,
Justin Brill Baltimore, Maryland January 30, 2019