(By Scott Martindale) Apple. Need I say more?
Well, perhaps just a few more words are in order. With markets showing concern about renewed debt worries and recession in Europe and signs of economic slowing both in China and the U.S., Apple (AAPL) stepped up to the earnings plate and smacked a grand slam on the first pitch. It pulled up its shades at the poker table and offered up a royal flush without taking another card. It stood at the microphone in the finals of American Idol and delivered a virtuoso performance without a single pitchy note, dog. It…well, you get the idea.
Indeed, AAPL had pulled back quite a bit of late, falling 14% from its 52-week high of $644 in just two weeks, as many investors felt that the stock's price had run so far so fast this year that it would be hard-pressed to have anything to say that would ignite further enthusiasm. But the company came through with flying colors, showing 59% year-over-year sales growth and 94% profit growth…and the stock rose an incredible 9% on Wednesday to close back above $600 and gain nearly $47 billion in market cap in just one day. In fact, there are only about 100 U.S.-listed stocks having a total market cap larger than what Apple gained in just one day.
Not to be outdone, Fed Chairman Bernanke got in on the act, stating that inflation remains subdued, the ultra-low fed funds rate will stay put, and the Fed stands ready to take additional stimulative actions as needed to keep the economy on the path of recovery
With Uncle Ben in their camp and AAPL leading the way like Rudolph in a blizzard, bulls took it as a green light to resume putting cash into stocks. Last week, I discussed the imminent June expiration of "Operation Twist," and how all stock gains for the past three years have come during Fed stimulus programs. So, bulls were encouraged to hear Chairman Bernanke hint that more is in store.
The Dow, Nasdaq, and S&P 500 are again well above key support levels at 13,000, 3,000, and 1370, respectively. With AAPL composing over 11% of the Nasdaq Composite and over 17% of the Nasdaq 100, it comes as no surprise that these were the biggest gaining indexes on Wednesday, up 2.3% and 2.7%, respectively. And with AAPL making up over 21% of its assets, the iShares Dow Jones U.S. Technology Sector ETF (IYW) was the sector leader, up 3.1% on Wednesday.
Among the 10 U.S. sector iShares, Energy (IYE) and Materials (IYM) have been the overall leaders this week through Wednesday, followed closely by Financial (IYF), Technology (IYW), and Industrial (IYJ). These five sectors carry the highest Sabrient Bull scores (as described below).
Beyond Apple's blow-out quarter, earnings season has been generally positive, albeit against low expectations. Of course, there have been many exceptions, and Gradient Analytics' in-depth forensic accounting research has been out in front of a number of blow-ups, with negative grades on names like Accretive Health (AH), Iconix Brand (ICON), Netflix (NFLX), Silicon Laboratories (SLAB), Wipro (WIT), Rockwell Collins (COL), Mattel (MAT), Cepheid (CPHD), Quest Diagnostics (DGX), and Gentex (GNTX). AH got hit particularly hard on Wednesday, falling more than 40% in one day. SLAB and ICON were each down about 15%. Any portfolio manager (particularly long/short) who is not using Gradient research is missing the boat, IMHO.
As a reminder, China is the subject of this month's edition of The MacroReport, which is a new monthly co-publication of Sabrient Systems and MacroRisk Analytics, providing an in-depth analysis of the macroeconomic trends in focus territories. The MacroReport offers a unique combination of global market commentary and analysis with specific actionable ideas. The April issue considers three scenarios driven by a combination of circumstances and events in China, and concludes with a series of economic factor-based ETF portfolios and "Quick Response" stock choices intended to capitalize on each scenario.