State of the Stock Market Analysis for the Week Ending MayĀ 1st, 2016 (Earnings Continue To Be Mixed 5-01-16) All You Need Is Jobs

It was a rough week for a stock market that was looking for direction. Stocks traded flat and mixed through Wednesday, but following the Fed’s comments on Wednesday, we saw a big decline on Thursday and another weak performance on Friday. Apple (AAPL) earnings disappointed this past week, and the mega-cap tech giant ended up down 11% for the week. We did see the stock market bounce back a bit from Friday’s lows, but stocks still closed out the month of April on a negative note. It was not that bad of a month overall, though, For the month of April, the Dow was up 0.5%, the Nasdaq was down 1.9%, and the S&P 500 was up 0.3%.

Earnings and economic news continue to come in mixed, and that sort of news has kept investors on the sidelines. There was a lot of optimism when we recently saw the Dow move back above 18,000 and the S&P 500 above 2,100, but both of the major indices failed to hold those levels, and closed out the month with the Dow at 17,773 and the S&P 500 at 2,065. The Nasdaq finished the week at 4,775, and investors were concerned as the Nasdaq dipped below both its 50-day and 200-day moving average; both at the 4,809 level. The rebound that we have witnessed since the late-February bottom has clearly stalled out, which should make for a challenging May.

The big story of the week was the earnings disappointment at Apple. Apple’s revenues declined for the first time since January of 2007, and that was cause for concern. Investor Carl Icahn even announced that he had unloaded his entire position in Apple, and that added some more misery to the news that iPhone sales were 18% lower than a year ago. Sales for Apple in China were sharply lower as well, and the comments of “Peak Apple” were widespread. Apple is still a fantastic company, but anytime you have sales slowing and possible price cutting, a growth stock can suddenly transition into more of a value stock. These sorts of transitions are painful, and that might explain Apple’s 11% decline for the week.

This same sort of fate awaited Microsoft (MSFT) back in 1999 when it peaked in share price shortly after being added to the Dow Jones Industrial Average. Microsoft is still a fantastic company, but amazingly enough, it has never topped that all-time high that it reached in December of 1999. Some say it could be a foreshadow of what awaits Apple, which closed Friday at $93.74, well off its all-time highs above $130 per share. (However, for the long run, the Gorilla still cannot think of many better investments!) Apple helped lead the post-March 2009 bear market low, and when a market leader gets the sniffles, the broader market often catches a cold. That is not to say we are in for a market meltdown, but it still is a sign that something is not quite right.

While Apple, Microsoft, and Google/Alphabet may have recently had disappointing earnings, all was not “doom and gloom” in tech-land. We did see blowout earnings from Facebook (FB) and Amazon (AMZN) this week, which helped offset some of the negative vibe in the technology sector. By the way, it was amazing to note that after Amazon’s earnings report this week, the stock rose by $70 per share after hours, which made founder and CEO Jeff Bezos $6 billion richer in the 20 minutes that followed Thursday’s earnings announcement. Amazon closed Friday up $57.59 at $659.59, so it was clearly a great week for the online giant.

So where is our economy and market headed? Well, in economic news, the University of Michigan consumer sentiment number for April came in at 89.0, and that was below the 90.0 reading that economists had expected and below March’s 89.7. In addition, consumer spending for March rose 0.1% versus the expected 0.2% rise and February’s 0.2% increase. These numbers show that consumers are simply not confident right now, and that helps explain why corporate earnings are lackluster and why the general economy remains weak. That dismal 0.5% GDP number we saw this week was additional evidence that the economy is just not gaining traction.

The weak numbers we are seeing are likely the reason Janet Yellen and the Fed came out with fairly “dovish” comments this week. Dovish or not, the Fed’s comments on Wednesday still led to the Thursday and Friday stock market pullback that has left investors on edge. It might be just a normal pullback right now, so the hope is that May will bring the bulls a much needed bounce in stocks. Earnings season is running its course, and as flimsy as it was, it was not all that bad, so maybe a May bounce is waiting in the wings. That said, the Gorilla wishes each and all a relaxing and restful weekend. We will be back in action on Monday, so stay tuned as we head into May!

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