As Hawkins' mother likes to say whenever an experience isn't quite up to her standards, "Yesterday was innnnteresting." It all started out with the hoopla over snowmaggedon, which highlighted the beauty of mankind's way of always finding a silver lining. Fashion website Lyst reported that hits for pricey unmentionables from companies such as Agent Provocateur Lingerie increased by more than 500% between the weekend and Monday. Sadly, for those looking to enjoy those new purchases during an extended snow-in, Gary Szatkowski (say that five times fast), the meteorologist in charge of the National Weather Service's office in Mt. Holly, N.J., felt the need to apologize for the no-show-snow on Twitter!
The puny piles of powder may have put some personal plans on hold, and reportedly cost New York City an estimated $200 million, but with Wall Street knee-deep in earnings season (26% of the S&P 500 and 37% of the Dow issue results this week), the market provided plenty of action. The S&P 500 opened down almost a full percentage point, bottomed out just before 11 a.m., had a gradual rally through to 2:30 p.m., only to again sink deeper to close down 1.33%.
Today, Apple (AAPL) shares soared as the company surpassed even the most bullish forecasts over the holiday quarter by selling more iPhones at higher prices and enjoying higher margins with each sale. The average selling price for iPhones was $50 more than last year, while sales rose 46% above a year earlier, resulting in a mind-boggling 74.5 million phones sold in the quarter, which when you do the math, means selling 34,000 phones an hour, 24 hours a day. Even CEO Tim Cook admitted, "Demand for iPhone was staggering... This volume is hard to comprehend." With revenue $7 billion above expectations and earnings per share at $3.06 vs. estimates of $2.60, AAPL shares today have been up as much as 8.42%.
Looking forward for the company, the Apple watch will reportedly ship in April. Meanwhile, Cook told analysts during yesterday's earnings call that around $2 out of every $3 spent using contactless payments across Visa (V), MasterCard (MA) and American Express (AXP) are being made with Apple Pay. There are now 750 banks and credit unions signed up to roll out the service, while retail partners such as Whole Foods (WFM) report that mobile payments are up 400% since the launch of Apple Pay. USA Technologies (USAT) is also working with Apple to install self-serve terminals using Apple Pay for vending machines, parking pay stations, laundromats and more.
We have long been fans of Apple, owning most all of its products. Hawkins even owns two iPhones, one for the U.S. and one for her second home in Italy, and while we still think the company has further room to delight shareholders, we are more focused these days on opportunities in the Apple ecosystem and the expanding contactless pay category that benefits shares of Qualcomm (QCOM), Skyworks Solutions (SWKS), the aforementioned USA Technologies and Verifone Systems (PAY).
The weak global economy coupled with the appreciating dollar and falling oil has led companies such as Caterpillar (CAT), Procter & Gamble (PG), and Pfizer (PFE) to disappoint analysts. Pfizer reported that nearly all of its 3.3% revenue drop was due to the strong dollar, while Caterpillar also cited a reduction in construction in oil-producing regions, weak demand from mining companies along with a 12% decline in retail machinery sales.
All of this is in line with our expectations for headwinds from a strong dollar for those companies that derive a material percentage of their revenues internationally. Procter & Gamble derives roughly two-thirds of its revenue outside the U.S., so as the dollar continues to strengthen, we believe it will continue to struggle. While S&P 500 companies derive roughly 27% of sales from abroad, the small-cap S&P 600 companies derive just 14% overseas, according to data from Citi.
Investors who worry that the dollar is likely to continue on its path may want to take a look at small-caps that generate the majority of their sales domestically, such as La-Z-Boy (LZB), or retailers that buy internationally and sell domestically such as Macy's (M), Kohl's (KSS), and Target (TGT).
Here in the U.S. the early morning rally wobbled as investors waited to hear from the Fed. Today's announcement was essentially identical to the prior one, reiterating that the committee intends to be patient and pledging to keep rates at or near zero until at least mid-year, keeping the door open for any rate hike to be even later than is currently expected. The market reacted by pushing the dollar up further while bond yields fell even more. Central bankers and exchange rates continue to dominate the market narrative as just yesterday, Singapore joined the ranks of central banks fighting deflationary forces, announcing a surprise easing of its policy. It will reduce the slope of its currencies trading band against a basket of currencies in advance of its scheduled policy meeting in April.
It's looking like 2015 is shaping up to be a year dominated primarily by macro forces with the evolving narrative around central bank omnipotence taking center stage -- right in the Hawkins wheelhouse.