Key Takeaways
- Tech earnings lift markets, but Amazon cloud growth disappoints slightly
- Apple warns of tariff impact, highlights supply chain shift
- Jobs report solid, but severance pay masks employment softness
Stocks posted gains on Thursday largely thanks to good earnings from tech companies such as Microsoft and Meta Platforms. The S&P 500 gained 0.6% and the Nasdaq Composite gained 1.5%. Small-cap stocks were up 0.6% while the Dow Jones Industrial Average managed a small gain of 0.2%.
Last night, after the close, both Amazon and Apple announced earnings. I’ve been eager to hear from these two companies given their large reliance on China. In the case of Amazon, while the company beat on both the top and bottom lines, their cloud computing service number missed. That could suggest the company is losing share to Microsoft. With respect to future earnings, Amazon provided guidance that was relatively in line with forecasts; however, the company did hedge a bit because of tariff uncertainty.
Apple also reported earnings that beat on both the top and bottom lines. Apple has been deeply reliant on China for manufacturing but has been looking to diversify its supply chain. The company said the majority of iPhones shipped this quarter will come from India and Vietnam. With respect to the trade war, Apple said it expects tariffs to cost the company around $900 million. One other interesting item of note had to do with Apple’s relationship to Google. About one-fourth of Apple’s operating profits come from payments the company receives from Google, which runs the search engine in Apple’s Safari browser. Those payments total $20 billion annually. Earlier this month, a judge ruled against Google on antitrust grounds and those payments could potentially be in jeopardy. Therefore, this is something worth keeping in mind moving forward as the fallout from the Google ruling could have ancillary effects on other companies as well.
Other companies announcing earnings included Airbnb. Earnings were in line with forecasts, but its forecast was weaker than expected. The company said economic uncertainty is causing a slowdown in travel. We also heard from both Chevron and Exxon. This was an interesting tale of two cities. Chevron stock, which is down nearly 2% in premarket trading, said lower oil prices have slowed the pace of share buybacks. On the other hand, Exxon said that production increases and cost cutting have allowed the company to maintain the pace of buybacks. Shares of Exxon are up fractionally in premarket activity.
Turning to the economy, the April report on employment was released this morning. According to the Wall Street Journal, analysts expected that report to show 133,000 new jobs created and an unemployment rate of 4.2%. That would leave the unemployment rate unchanged from March, but it would also mark a significant drop in new jobs created. In March, 228,000 new jobs were reported. The actual numbers reported were 177,000 new jobs and an unemployment rate of 4.2%. Digging into the numbers a bit, federal government employment saw a loss of 9,000 jobs. However, employees on leave or receiving severance pay are considered to be employed. That is something to keep in mind as severance pay ends. Also, revisions to February and March resulted in 58,000 fewer jobs having been created than initially reported.
Awhile back, I said I wanted to see a few things happen before I’d feel as if the market were back on solid footing. The first was a drop in volatility, back near its historical mean of 16. At just under 23, we are still well above that level. The other two things I mentioned were to see the S&P 500 close above 5,500, which we have done since last Friday. After that, I would like to see the index close above its 200-day moving average. That level is still quite a bit higher at 5,745, but we’re making progress. Next week will be another heavy week for earnings and economic data, including the Federal Reserve Open Market Committee meeting. Usually, markets do not break through a 200-day moving average on their first try and when you consider where we are, the momentum we’re gaining and what’s on the calendar next week, I think it’s prudent to be cautious as we near that 5,745 level. While a break above would be bullish, do not be surprised if we touch that level and then pull back.
For today, I’m watching the tech sector and volatility. Futures are trading higher in the premarket and volatility is down slightly. With Apple and Amazon both trading lower after earnings, if those two can turn around, we could see a strong day. The market seems to like the employment data, which is helping. I think analysts were worried about a downside surprise. Again though, I’ll point out the federal workers receiving severance are considered employed and that could be potentially kicking down the road a substantial drop in employment. As always, 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.