WASHINGTON, April 25, 2012 – Continuing with yesterday’s Mickey Mouse Club motif, welcome to Anything Can Happen Day II. Yesterday we noted that the impending quarterly report from Apple and speculation on the Federal Reserve would dominate trading moves yesterday and that certainly proved to be the case. At least as far as Apple was concerned. Analysts expected a terrible number from Apple—which, in the case of that company, probably meant a “less than expected” earnings beat.
What did everyone get? After the close, and after having dropped 2% (11 ½ points) Tuesday to $560.28 per share, Apple (AAPL) reported a blowout quarter, doubling its profit from the same quarter last year and making everyone wonder what some of the pessimistic analysts had been drinking. The stock shot up in aftermarket trading and is up $54 dollars ($54! You read that right.) in pre-market trading as this is being written. I’d been tempted to gamble on a few Apple shares near market close yesterday but didn’t. Grrr. I’ll consign this to the “Oh Well” Department.
Apple was the key component for most of the talking heads’ happy talk yesterday, as indeed it should have been. The stock has been a real phenomenon, even in bear markets, and its juicy earnings are giving market futures a happy tone this morning, with the Dow futures pointing up 36, the S&P up 7, and the NAZZ, battered and bruised lately, up a whopping 53 points, no doubt in major part to Apple’s heavy weighting.
CNBC notes that “at its current price, the company alone would add about 5.4 points, or nearly 0.4 percent, to the Standard & Poor’s 500, an impact that would be at record levels…. The company’s impact would be even greater on the information technology sector of the 500 [QQQ, known affectionately as “the Qs”], pushing the group up 1.96 percent, also a record.” (Oops, I shorted the Qs at the close last night. Gotta fix that quick at 9:30. We’ll consign that to the “What Was He Thinking?” Department.)
Tone is being helped this morning, too, by other earnings beats, notably heavy equipment manufacturer Caterpillar (CAT).
On the negative side, durable goods numbers sank over 4% in March, not a good sign of forward momentum for the economy. But this morning’s formal market open will choose to ignore this, and is likely to whoosh straight up when the bell rings.
However, things are likely to get a little fluttery after this morning’s opening display of irrational exuberance. Because that’s when things should come back down to earth a bit as the market awaits the Fed’s latest pronouncements, to be released at 2 p.m. EDT followed by a Ben Bernanke press Q&A at 2:15. Market bulls want the Fed to announce they’ll open the spigots again this summer, replacing the current “Operation Twist” bond-buying program with QE3 (or is that QE4?), i.e., more quantitative monetary easing, i.e., printing more and more money.
The Fed, however, is likely to stand pat, at least for now, reaffirming its plans to keep interest rates low through 2014, but keeping its powder dry on the potential for more QE. Watch for market action to get a little fluttery late morning, taking back some early gains. Near 2 p.m., you may see notable surges one way or the other before the Fed report is issued, as “they” (Wall Street insiders and bigwigs plus, perhaps, a few of the gnomes of Zurich) will already have illegally obtained information from the report as “they” always do. (We’ll have a bigger essay on “they” in a future column.)
Bottom line, however, is this. These are the facts on the ground and the rumors that the market will trade on this morning. But underneath it all, insiders and hedge funds are still selling and high frequency traders are still lining up for big negative trades. We might be able to scalp some quick trades over the next few days, but cash is still your friend today.
Above all, don’t chase Apple. Chasing any stock is usually a loser’s game. You win some and you lose some.
(UPDATE: Fed’s report is out earlier than I expected. It’s pretty much as we suggested here. They’re standing pat on current policies, essentially see no need for QE whatever, but are willing to reconsider if the economy starts getting mired again which we suspect it might. Full text of the Fed’s policy statement is here. The Bernank’s presser is still scheduled for 2:25 p.m. this afternoon, and you should easily be able to find it live on cable or via streaming video. Market is still up, but the Dow is off roughly 40 points from its morning high. Whipsawing will probably continue.)