Apple (AAPL) delivered a strong earnings report last night and has FAANG fans feeling a little better, but the big question now is whether the positive news can produce some sustained upside for the broad market. There has not been much positive sympathy created by good earnings reports this quarter but Apple is the Big Kahuna and it impacts the mood more than any other company.
Unfortunately for the bulls, Apple faces some headwinds when it come to producing improved sentiment for the entire market. First is that there has been a general tendency toward selling good news this quarter. The strong reports from the likes of Action Alerts Plus holdings Apple and Alphabet (GOOGL) , and some semiconductors, has not resulted in sustained upside. Amazon had an exceptionally strong report, but it reversed sharply the next day and helped to ignite talk that the FAANG group may have topped.
The other problem that Apple faces when it comes to leading this market higher is that there is some other significant news at play.
There was some movement yesterday on various headlines about trade negotiations with China -- and that issue is in the news again this morning on reports that President Trump is looking to raise tariffs on certain Chinese goods to 25% from 10%. The Chinese have vowed retaliation if this occurs. Obviously negotiations are not going well and will continue to be a headwind in the short term.
Another issue today is that we have the Federal Open Market Committee (FOMC) interest rate decision at 2 p.m. ET. It is widely anticipated that rates will not be modified today, but a hike is nearly fully priced in for the next meeting. There is no press conference today so the policy statement will be the focus. Market players will be looking for comments about inflation as economic growth of around 3% is above current expectations.
Although rates have been on the upswing for a while, they have not had any major market impact, as other central bankers around the world continue to be quite dovish. The bears have long anticipated that a hawkish Fed would eventually kill this market, but there are no signs of that yet.
The biggest problem the market faces right now is that technical conditions look good for a failed bounce. The action yesterday was a nice respite after a couple of days of intense selling, but there has been some damage to the charts recently and the buyers need to show that they can put forth a sustained effort. If we undercut yesterday's lows, that is going to cause some major problems.
We have a sightly negative start on the way, despite Apple, but the reaction to the trade headlines is muted so far. Stay focused on the price action in order to determine what headlines matter the most.