This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
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MICHAEL KRAMER AND THE CLIENTS OF MOTT CAPITAL OWN AAPL
It has become clear that the market is sinking for one reason and that reason is slowing growth, not anyone one stock. The market sees the signs of an economic slowdown. However, it is something the Fed is choosing to ignore. At least as of the Fed’s latest policy announcements.
The markets have a way of, well, getting its message across. It also has a way of making the most powerful and influential people to, umm, “come to their senses.” The market is not happy with the Fed’s monetary path, and the market is flexing its muscle as it only knows how and that is to push stock prices lower.
Make no mistake the market will continue to protest the Fed and test the resolve of Chairman Powell. If there is one thing I know, it is that the market always wins. I’m not old enough to remember an FOMC chair before Greenspan, but Bernanke gave in; Yellen gave in; even Greenspan gave in, and there is no doubt -Powell will give in too. He will be force by the market to change his stance on monetary policy.
Sudden Mood Change
If you think the market’s sudden change in mood randomly started, you are very wrong. The sell-off that began on October 3 was also the day Chairman Powell said we are a long way from “neutral,” whatever that means. I’m not even sure the Fed knows what “neutral” means. The market did not like that statement, period, because it is open-ended. The market does not know if it means there is one more hike coming or 10 more hikes. The term “neutral” creates uncertainty, and if there is one thing the market hates it is uncertainty.
The market is also looking into the future, and it doesn’t like what it is seeing. Numbers do not lie. The CNBC Rapid Update is tracking 4Q GDP growth at 2.9%, slower than the third quarter’s 3.6%. The Atlanta Fed’s GDPNow is tracking 4Q GDP growth at 2.5%.
Slowing Earnings Growth
If that doesn’t suggest a slowing economy, look at these number from S&P Dow Jones Indices. Fourth quarter 2018 EPS estimates have fallen 2.7% since September 30, while full-year 2019 earnings estimates have fallen 1.2%.
Even worse EPS growth in 2019 has fallen to 10.6% from 12.2% in August, as estimates drop to $174.39 from $177.07.
We can see that earnings estimates for the fourth quarter are now starting to fall too.
Now we can begin to understand why the market is pushing the Fed into a box. There are signs of an economy that is slowing. It is not saying that there will be a recession — however, slower growth warrants a lower earnings multiple for the S&P 500.
Blame President Trump
Perhaps, Powell could smartly say that President Trump’s trade policies are slowing domestic and international growth. It allows Powell to change his monetary stance and not make it look like he is It takes care of anyone that thinks Powell is caving into President Trump.
There is no doubt that Apple is one of the most important stocks in the market. It is the $850 billion gorilla in the room. The stock has plunged a stunning 24% since it reported results. Not because the numbers were horrible, not because the guidance was awful. No, but because the company said it wasn’t going to give iPhone unit sales anymore.
Does that mean the market is due to fall even further because Apple is falling? Probably not, especially when you consider it represents about 3.6% of the S&P 500 index. I’d hope the other 96.4% of companies could pick up the slack, should the economic outlook change.
Does Apple have further to fall? I do not know, but the chart does suggest a risk for further downside, after Wednesday poor performance. The stock has now broken technical support at $180, and it has also fallen below its long-term uptrend dating back to 2016. It suggests that its next level of support comes around $164, near the February lows.
Should the market continue to sink, it will not be Apple or anyone stock that causes the decline. It will be the overly aggressive Fed which is creating the slowing economic growth that sinks the market.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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