China's Sunday morning reserve requirement ratio cut was riveting stuff, as it reinforced reckless investor thinking, but it's all about the Apple (AAPL) Watch launch this week, and an avalanche of earnings.
Expect several restaurant companies to announce Apple Watch apps this week (I cannot share more yet) as the official April 24 launch dates comes into view. This news will fuel even more headlines on how Apple has created a formidable long-term product platform. And...there go earnings estimates higher!
On the topic of earnings, well, it sure has been intriguing early on that lowered expectations have not led to stock pops. American Express' (AXP) earnings, among other reasons, went on to support Friday's market rout. It will be high drama this week, as names like Coca-Cola (KO), PepsiCo (PEP), and Amazon (AMZN) report against a backdrop of more tame expectations. Thus far, the market has been very let down by the fundamentals of companies (so much for the power of stock buybacks!), excluding currency fluctuations.
Here is what's on my plate...
1. The Apple Watch is a baby unicorn.
I am a proud new owner of an Apple Watch...sort of. While technically I own an Apple Watch Sport, it does not arrive until the first or second week of JUNE! That means I will not be able to review how Apple Watch restaurant apps work upon their arrival. Ugh. However, I can take solace in the extra bright green strap that I ordered for $49.99, which is scheduled to arrive in mid-May. Umm yeah.
I am convinced Apple does these early product shortages on purpose, to boost longer run demand. Look at me -- I am itching to receive my Apple Watch, already can't wait for Apple Watch 2. Nevertheless, here are some takeaways from my experience at the Apple Store with my editor @NelWang (Twitter handle):
- Missed opportunity by Apple to not GIVE employees Apple Watches right now. It would have been instant marketing on the street. The Apple employee that demoed the watch for me was wearing ANOTHER smartwatch, from a competing company -- I believe it was Android-based.
- The Apple Watch is NOT an iPhone or iPad -- but its small face will bring some formidable changes to how one interacts with the universe each day.
- The profit margins on the bands are astronomical -- the costs to produce have to be darn cheap and consumers, such as myself, are already buying multiple straps for something they can't even use yet. Imagine when they do start using it and seeing the straps being worn by friends.
2. Do earnings continue to disappoint?
It would be nice to see positive market reactions to OK earnings reports this week from big names. Seeing that would at least go a long way to justifying the strong relative outperformance of, for example, the Russell 2000 and Consumer Discretionary ETF in the past three months. I am not holding out hope this happens, given the initial round of earrings reports.
The company's CEO Doug Oberhelman called the global economic environment "a very volatile and dangerous world" in early April. He then went on to talk about how 2016 will be a comeback year for the company. When a CEO says this weeks before a quarter is released, it's often not a good sign. I expect Caterpillar's (CAT) businesses tied to energy prices to show brutal results, and Oberhelman to strike a more downbeat tone than was offered in late January.
The company's EPS guidance of $4.75 is likely to be shaved. I do not rule out the company sharing that it plans to launch a restructuring plan (another...) that costs more than the $150 million that it articulated in January.
Watch the market's reaction to Caterpillar -- the stock has been hammered 9.1% this year. A positive market reaction could signal the start of a shift in recent dreary market sentiment.
4. PepsiCo and Dunkin Donuts
I will be using each report to get a read on whether to believe recently surging consumer confidence. Here is the deal. PepsiCo has a snack business that has been performing quite nicely (I believe it did so again in the first quarter) amid a push towards more "better for you" products and, recently, the plunge in gas prices spurring some impulse buying at convenience stores.
Dunkin Donuts (DNKN) has a high store concentration in the Northeast, where weather was not too friendly in the first quarter. But, like PepsiCo, the underlying transactions for egg sandwiches and iced coffee during good weather periods were likely solid. I think quality quarters in these companies' impulse transaction-oriented businesses bodes well for consumer spending this spring, and suggests some retailers could offer upbeat commentary on April/May sales when they report earnings in mid-to-late May. Amazon is unlikely to share anything of relevance this week regarding consumer spending, per its usually approach to dealing with Wall Street.
5. V.F. Corp
Tough call for me here, to be honest. Love the company, love what I am seeing in terms of new products from them this spring -- especially in North Face and Vans. Yet, the stock has underperformed the major indices in the past three months, due mostly to V.F. Corp's (VFC) international exposure, but perhaps also on concerns as to how the quarter began (weather, port issues). I think sitting out V.F. Corp. into earnings would be a reasonable move until we get a read on inventory levels and sales in Europe/China.