EmailFrom our vantage point, there are at least two things that have gone as expected since yesterday's close. It just so happens that they were the two things that were focal points for the market following yesterday's close -- Apple's (AAPL) earnings report and the president's State of the Union Address.
To put it succinctly, Apple had a blowout quarter, posting earnings of $13.87 per share on revenue of $46.3 bln that easily eclipsed the Capital IQ consensus estimates of $10.08 and $39.04 bln, respectively.
We know what you're thinking. How can we think Apple's results were as expected when they were so far above consensus estimates?
The answer is twofold: (1) Apple typically surprises in a big way, notwithstanding the best estimates from the best analysts of the company and (2) people were throwing eggs at the Apple store in Beijing a few weeks ago when they were upset they couldn't get the iPhone they had been standing in line for overnight.
The latter said it all. Where Apple's customers are throwing eggs at the Apple store because they can't get what they want, Apple's competitors have turned into scrambled eggs trying to figure out how to connect with consumers in the same innovative way.
Shares of AAPL are trading 8% higher in premarket action and are acting as a strong source of support for the broader market. The Nasdaq 100 futures are up 17 points, yet the S&P futures are still down four points.
We suspect there will be an inclination to point to the State of the Union Address as a reason why the S&P futures are underwater given calls by the president to raise taxes on the rich, to increase fees for banks to pay for mass mortgage refinancing, and to take away tax breaks for big oil companies.
We can see how some would tie the State of the Union Address to the weakness in the futures. Then again, there wasn't anything entirely surprising in these views nor was there anything surprising in the antipathy shown on the faces of Republican lawmakers listening to the speech.
No, the State of the Union Address went as expected, as did the Republican response, so we cannot attach any undue importance to it as a market driver this morning.
Frankly, the broader market isn't expected to move all that much as it is when trading begins. The S&P futures are just 0.3% below fair value.
The impending FOMC announcement, a negative Q4 GDP reading out of the UK (-0.2%), lingering uncertainty about the viability of a Greek debt swap, and earnings results that are generally good but not quite as strong as recent quarters are all garnering acclaim as limiting factors this morning.
On the earnings front, United Technologies (UTX), Boeing (BA), Abbott Labs (ABT), and ConocoPhillips (COP) were some of the luminaries that beat earnings estimates, while companies like Yahoo! (YHOO), Automatic Data Processing (ADP), and Xerox (XRX) met estimates, and companies like Novartis (NVS), WellPoint (WLP), and Exelon (EXC) missed estimates.
In all likelihood, the lack of conviction this morning has more to do with a wait-and-see attitude ahead of the FOMC decision, which will be unfurled in a three-part process: (1) a policy directive released at 12:30 p.m. ET (2) members' individual fed funds rate forecasts released around 2:00 p.m. ET and (3) a press conference conducted by Fed Chairman Bernanke at 2:15 p.m. ET.
Clearly, there will not be a change to the fed funds rate today. The real intrigue surrounds the individual forecasts, and when they suggest the first increase is likely to be, as well as any policy innuendo relating to the prospect of additional quantitative easing.
The lack of conviction ahead of the FOMC news is pretty much as expected.
--Patrick J. O'Hare, Briefing.com
Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.
[Editor's Note: original post mistakenly indicated 11:30 a.m. ET for the policy directive release. The comment has been edited to include the correct time of 12:30 p.m. ET]
