Apple Beats While Employment Number Comes In Stronger Than Expected

Key Takeaways

• Apple Posts Stronger Than Expected Revenues and Profit
• Employment Situation Remains Strong
• Trading Range Continues Holding

It’s been an interesting start to May as we head into Friday. Markets have been under pressure most of the week and Thursday felt a bit like chasing down loose chickens. For the week through Thursday, both the S&P 500 and the Nasdaq Composite are down around 2.5%. With the Fed decision and Apple
AAPL
earnings now behind us, all eyes were on this morning’s jobs number which came in stronger than expected.

After the close on Thursday, Apple reported earnings that came in well above estimates. The company also announced a 4% increase in their dividend. That has shares indicated higher in the premarket by 2.5%. We’re more than three-quarters of a way through earnings season at this point. 80% of the S&P 500 companies have reported and according to a Wall Street Journal article, 78% of those companies beat analyst expectations. However, quarterly profits are pointing to a drop of 2.7% on a year-over-year basis.

Despite Apple’s stronger than expected earnings, if there is one thing I am slightly concerned about, it’s the reliance of this market on just a couple of stocks, namely, Apple and Microsoft
MSFT
. The two stocks accounted for roughly 6% of the S&P 500 ETF, SPY
PY

SPY
, through 2019. However, they now account for 14% of SPY and the concentration of around just a couple stocks is something worth keeping in mind.

The other big stories this week continue to be regional banks and interest rates. Regional banks have been under significant pressure. The S&P 500 Regional Banking ETF is down 15% through Thursday. Heading into Friday, PacWest Bancorp
PACW
was down 70% for this week alone as the crisis in the banking sector continues unfolding. While it seemed as though the worst of this was behind us, it now appears more like this isn’t going away anytime soon.

Adding to the uncertainty in the banking sector was the decision on Wednesday by the Fed to raise interest rates a quarter point. I find this somewhat perplexing because we cannot yet quantify the effect on credit conditions the banking crisis will ultimately have. That had many observers speculating and suggesting the Fed should pause on raising rates for the time being. Despite raising rates Wednesday, it does appear as though the Fed is done for now.

Although most expect the Fed to hit the pause button, this morning’s jobs report came in much stronger than expected. Economists were looking for 180 thousand new jobs created and an unemployment rate of 3.6%. The actual numbers were 253 thousand new jobs and an unemployment rate of 3.4%. Average hourly earnings were also up stronger than expected. This continues to be an interesting situation as we’ve seen so many large scale layoffs in the past year, yet the employment rate remains very low and earnings continue increasing.

Finally, despite all the news this week, the S&P 500 continues to find itself stuck in its trading range of 3800 – 4200. The VIX, which closed last week well below 16 has since climbed as high as 21.33 earlier this week and in premarket is indicated over 18.5. Therefore, the question becomes, what will ultimately push this market to break out of its range, one way or another? If it’s not a banking crisis, interest rate increase or earnings, I’m not sure what it will be. Then again, that’s what makes markets so interesting. In the meantime, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.