Page One
Alphabet (GOOG) is down 7.2% after reporting results that fell short of investors' high expectations and announcing a massive $75 billion capex plan for 2025. Apple (AAPL) is down 2.1% on a Bloomberg report that China is considering a probe into its App Store fees and policies.
That is approximately $5.4 trillion of market capitalization in those two companies or roughly 10.6% of the S&P 500 market capitalization.
Consider that Adv. Micro Devices (AMD) is also down 10% after its earnings report, Uber (UBER) is down 5.5% after its earnings report, and Chipotle Mexican Grill (CMG) is down 5.6% after its earnings report. That is a a good bit of lost momentum for some prior momentum favorites.
It is no wonder that the equity futures are lower this morning. The more surprising, and pleasing, element is that they aren't down even more than they are. Dow component Walt Disney (DIS) is up 1.3% after its earnings report.
Currently, the S&P 500 futures are down 19 points and are trading 0.3% below fair value, the Nasdaq 100 futures are down 139 points and are trading 0.7% below fair value, and the Dow Jones Industrial Average futures are down 46 points and are trading 0.1% below fair value.
The fairly measured response to the bad price action in some former high flyers suggests to us that market participants will show a continued inclination to rotate money into other parts of the stock market. Accordingly, don't be surprised if you see relative strength today in the equal-weighted S&P 500 versus the market cap-weighted S&P 500, relative strength in the value factor versus the growth factor, and relative strength in the small/midcap stocks versus large-cap stocks.
Sliding Treasury yields have provided some cover for this trade. The 2-yr note yield is down one basis point to 4.21% and the 10-yr note yield is down four basis points to 4.47%. That improvement was achieved mostly in the overnight trade on some safe-haven interest and a reaction to some weaker-than-expected Services PMI readings for January out of China and the eurozone. The ISM Services PMI for the U.S. (Briefing.com consensus 53.9%; prior 54.1%) will be out at 10:00 a.m. ET.
On a related note, the Treasury Department announced today that it will be offering $125 billion of Treasury securities to refund approximately $106.2 billion of privately-held Treasury notes and bonds maturing on February 15. The issuance, which will include $58 billion in 3-yr notes, $42 billion in 10-yr notes, and $25 billion in 30-yr bonds, will raise approximately $18.8 billion in new cash.
The Treasury added that it anticipates maintaining nominal coupon and FRN auction sizes for at least the next several quarters.
In other developments, President Trump added some uncertainty to the geopolitical scene by floating a view at a press conference yesterday with Israeli Prime Minister Netanyahu that the U.S. should takeover Gaza and run a redevelopment effort there. We're going to just let that thought float for readers.
We'll go back to ground with coverage of this morning's economic data.
- The MBA's weekly Mortgage Applications Index was up 2.2% with refinance applications up 12% and purchase applications down 4%.
- The ADP Employment Change Report for January showed an 183,000 increase in private-sector jobs (Briefing.com consensus 155,000) following an upwardly revised 176,000 (from 122,000) in December.
- The key takeaway from the report is that the entirety of the increase was in the service-providing sector (190,000). There were 6,000 fewer jobs in the goods-producing sector.
- The December Trade Balance Report showed a widening in the deficit to $98.4 billion (Briefing.com consensus -$98.0 billion) from a downwardly revised $78.9 billion (from -$78.2 billion) in November. December exports were $7.1 billion less than November exports while December imports were $12.4 billion more than November imports.
- The key takeaway from the report is that the big jump in imports was presumably a function of trying to get ahead of possible tariff actions.
The trade report is unlikely to play well in the Oval Office, but it hasn't changed the state of play much in the stock market, which is apt to go to its favorite play in the playbook of buying the dip. Why? Because it has worked time and again, and participants will keep playing that game until it doesn't.
