There is no escaping the fact that some stocks count a lot more than others when it comes to moving the market. None count more than Apple (AAPL), which has a $3.57 trillion market capitalization. That makes it the largest and most heavily-weighted stock in the market cap-weighted S&P 500.
This matters greatly this morning, because Apple is up 4.0% in pre-market trading following its earnings report, which had some blemishes, like an iPhone revenue miss and an 11% revenue decline for its greater China business, but some pleasing gross margins (think profitability), some healthy growth for its services business, and an in-line fiscal Q2 revenue outlook.
Clearly, investors are seeing the good outweighing the bad, and that is a good thing for the equity futures market and the major indices.
The S&P 500 futures are up 26 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 152 points and are trading 0.7% above fair value, and the Dow Jones Industrial Average futures are up 112 points and are trading 0.3% above fair value.
Apple has helped negate some weakness in Chevron (CVX), Deckers Outdoor (DECK), PPG Industries (PPG), and Colgate-Palmolive (CL) after their earnings reports. To be fair, though, Apple hasn’t had to carry the entire load in helping the market move past losses in the aforementioned stocks and some others.
Visa (V), ExxonMobil (XOM), Atlassian Corp. (TEAM), KLA Corp. (KLAC), Intel (INTC), and Vertex Pharmaceuticals (VRTX), which received FDA approval for its non-opioid painkiller drug JOURNAVX, are some of the other luminaries making the futures market move in a positive direction.
The December Personal Income and Spending Report stifled some of the early enthusiasm that was building in the futures market, largely because it didn’t send a signal that inflation is improving on a year-over-year basis.
Briefly, personal income increased 0.4% month-over-month, as expected, following a 0.3% increase in November. Personal spending jumped 0.7% month-over-month (Briefing.com consensus 0.5%) on the heels of an upwardly revised 0.6% increase (from 0.4%) in November.
The PCE Price Index rose 0.3% month-over-month, as expected, leaving it up 2.6% year-over-year versus 2.4% in November. The core-PCE Price Index increased 0.2% month-over-month, as expected, leaving it up 2.8% year-over-year for the third month in a row.
The key takeaway from the report is that consumer spending is strong (which we knew from the Adv. Q4 GDP report) and that inflation is sticky above the Fed’s 2% target, making it clear why the Fed said it isn’t in a hurry to adjust its policy stance.
There will be inferences drawn from 3-month annualized rates of inflation and what not, but don’t forget that Fed Chair Powell in his press conference said specifically that, “At the end of the day, it comes down to 12-month inflation, because it takes out seasonality issues that may exist and we need to see that.”
As an aside, Fed Governor Bowman (FOMC voter) was speaking just as the report was released and said she continues to prefer a cautious and gradual approach to adjusting policy.
The Q4 Employment Cost Index was also released at 8:30 a.m. ET. It showed compensation costs for civilian workers increasing 0.9% (Briefing.com consensus 0.9%), seasonally adjusted, for the three-month period ending in December 2024 versus 0.8% for the third quarter.
The key takeaway from the report is that compensation costs moderated to 3.8% for the 12-month period ending in December 2024 from 4.2% for the 12-month period ending in December 2023.
Inflation will likely be a buzzword and point of debate in the business media throughout today’s session, not only because of these inflation reports, but also because the Trump administration continues to push tariff plans. Canada and Mexico could be subject to a 25% tariff starting February 1, China might be facing tariffs, and President Trump, according to Reuters, has said he will impose a 100% tariff on BRICS countries if they, as a bloc, move away from the dollar as the reserve currency.
The Treasury market has seen some knee-jerk action after this morning’s data. The inflation-sensitive 10-yr note yield went from 4.52% to 4.55% and is now back to 4.52%. No real change, then, amid the volatility, which one can rationalize on the basis that the PCE inflation numbers were as expected.
“As expected” still isn’t good enough for the Fed to cut rates. The market knows that, but it also knows that the economy overall and the earnings results overall are still working in its favor, so it continues to tolerate stretched multiples.
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Originally Posed January 31, 2025 – Apple pulling its weight
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