Several markets around the globe were closed for May Day. The black clad anarchists are swarming up in downtown Seattle as we speak. The Federal Reserve held interest rates steady but dashed hopes for a rate cut by saying the current period of low inflation pressures may be “transitory” and not permanent. Markets were bummed about the fading prospects for a rate hike and sent shares lower as the Dow fell 162 points to 26,430. Trading volume was lower.
We are about halfway through earnings and so far the results are better than expected. Heading into this reporting season the gurus were thinking earnings would be down roughly 3% but so far they are up about 1% on a blended rate and, according to a firm called Refinity, “we have avoided the earnings recession”. What caused the better earning so far is that China’s economy stabilized, the US Federal Reserve backed off on rate hikes and US consumers continue to spend like drunken sailors thanks to rising wages. Leading the earnings charge, tech companies are reporting much better than expected as evidences by what Apple did yesterday.
Apple reported earnings that beat analyst expectations on both top and more importantly, were an indication that Apple is slowly becoming more of a subscription business similar to Microsoft. If you look at total revenues, they were down 5% and net income was off 10% but looking inside the numbers, iPhone sales were down 17% while services, which include Apple Pay, Apple Music, iCloud, etc. were up 16% which was huge. iPads were up 20% and wearables increased 30%. The bottom line here was that the iPhone slump appears to be over and with strength in subscription revenue “blue skies are callin’.” The company also will buy back more stocks and upped its cash dividend by 5.5%.