Apple stock rose 2.25% yesterday to close over $175, a new all-time high. Shares in Apple are up 35% this year with most of the gains coming in the last six months. Its market cap, at $2.87 trillion, sets it on course to become the first $3 trillion company.
Making the recent run-up more interesting, Apple stock investors are either ignoring or discounting recent news about production cuts. As we discuss below, chip shortages and energy restrictions on its manufacturing facilities are costing the company billions in revenue. Apple stock led the market higher Wednesday, as last week’s angst and Omicron fears seem to be a distant memory.
What To Watch Today
- 8:30 a.m. ET: Initial jobless claims, week ended Dec. 4 (220,000 expected, 222,000 during prior week)
- 8:30 a.m. ET: Continuing claims, week ended Nov. 27 (1.910 million expected, 1.956 million during prior week)
- 10:00 a.m. ET: Wholesale inventories month-over-month, October final (2.2% expected, 2.2% in September)
- 12:00 p.m. ET: Household change in net worth, 3Q ($5.849 trillion in 2Q)
- 4:00 p.m. ET: Chewy (CHWY) to post adjusted losses of 1 cent on revenue of $2.21 billion
- 4:05 p.m. ET: Oracle (ORCL) to post adjusted earnings of $1.11 on revenue of $10.21 billion
- 4:15 p.m. ET: Broadcom (AVGO) to post adjusted earnings of $7.77 on revenue of $7.35 billion
- 4:15 p.m. ET: Costco (COST) to post adjusted earnings of $2.62 per share of $49.55 billion
Bull Market Is Back On
After a lot of teeth-gnashing and hand-wringing over the last two weeks, the bull market is back in play after yesterday’s continuation of the break of the downtrend. Furthermore, with the market back above the 20-dma, the only resistance currently is the previous high in November.
In the short term, the market has moved quickly, so this morning’s weak opening and failure at old highs is not surprising. Any consolidation near-term would set the market up nicely for the end-of-year Santa Rally.
After adding exposure last Friday, and on Monday, we are at full allocations for now. However, we are looking to use any weakness to overweight equity in our models heading into 2022.
The BLS JOLTs report once again confirmed there is a severe shortage of labor. The report shows there are 11.033 million job openings, 400k more than last month. This data along with recent productivity and labor costs adds to the mounting evidence that corporate profit margins will come under pressure in the coming month. Simply, job seekers and current employees have more bargaining power today than in decades.
The first table provides context to how outsized the current number of job openings are versus the last 20 years. The second table breaks down the number of job openings by industry.
Apple’s Nightmare Before Christmas
Nikkei Asia published Apple’s Nightmare Before Christmas this morning. The article details how chip shortages and energy restrictions are cutting down on Apple’s ability to produce iPhones. Despite the bad news, it is not denting investor enthusiasm. Apple’s stock price has been on a tear recently, rising 22% since early October. Our equity model holds a 3.75% position in Apple.
“Due to limited components and chips, it made no sense to work overtime on holidays and give extra pay for front-line workers,” a supply chain manager involved told Nikkei Asia. “That has never happened before. The Chinese golden holiday in the past was always the most hustling time when all of the assemblers were gearing up for production.”
After launching the iPhone 13 range and new iPads in September, Apple is falling millions of units short of its production goals and missing out on billions of dollars of revenue. In many countries, it is now too late for consumers to buy some Apple products in time to give as holiday gifts.
Also, another concern for Apple is the 1.89% sequential drop in unique virtual visits to the Apple website in the month of October after a two-month rally reflects the demand decline.
However, despite these negatives, investors continue to focus on the future for now. Such includes Apple’s growing focus on developing autonomous vehicles and augmented reality/virtual reality technologies. These rapidly emerging areas present lucrative growth opportunities for the long haul.
Importantly, Apple has ramped up its efforts in this direction by acquiring small tech firms dealing in AR hardware, 3D gaming, machine learning, and VR software, like SensoMotoric, Flyby Media, Emotient, TupleJump, Turi, etc. Moreover, Apple’s AR platform —ARKit— helps developers to build AR experiences for the iOS platform.
The SimpleVisor technical rank tells the tale of investor enthusiasm.
Is The Short Term Rally Here To Stay?
Consumer Credit is Finally Slowing Down
Consumer Credit rose by $16.9 billion in October almost half of an expected $30 billion increase. It also marks a sharp slowdown from September’s $27.8 billion growth. As stimulus checks were wound down, consumers started relying more on credit card debt and mortgage refinancings to meet their needs and compensate for inflation. One month does not make a trend, but this new data point along with weak consumer spending data for Black Friday and Cyber Monday argues consumer activity may be slowing.
“We’re all bored of hearing and reading about inflation, but our ears pricked up when we heard that coffee prices are at their highest level for more than a decade, at ~$2.50 per pound. Few commodities invoke emotion like coffee, with 62% of Americans drinking coffee every single day — each one of which gets through 3.1 cups on average.” – Chartr
U.S. Multiple Expansion vs. The World
The graph below, courtesy of Top-Down Charts, shows that since the Financial Crisis the CAPE P/E ratio has expanded 3x in the United States versus staying relatively flat in developed and emerging foreign markets. One reason to partially explain the outperformance is that U.S. equity indexes are more highly dominated by higher P/E tech companies. That said, when valuations normalize in the U.S., foreign markets may offer a little protection.
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