Industrial and cyclical companies rebounded and small caps led a broad advance in stocks Tuesday. Investors, meanwhile, awaited quarterly results on Apple, due after the close.
Apple (AAPL) continues to act like a market leader. Shares, which at one point rose 1.1% to hit a session high of 192.14, are up more than 12% since Jan. 1 and thus crushing the S&P 500’s return. Apple stock is also holding on to a narrow profit of roughly 7% since it broke out of a seven-week double bottom that presented a 179.04 proper buy point.
As of 3:45 p.m. ET, Apple helped the Nasdaq composite rise nearly 0.5% in late-afternoon trading Tuesday, following Monday’s 1.4% shellacking. At its session peak, the Nasdaq rose 1%.
The Nasdaq composite, still the premier index for growth companies, is flirting with its 50-day moving average for the first time in nearly four weeks. During much larger pullbacks in late January to early February and in March, the tech-driven index sliced right through its 50-day line but stayed on the north side of the longer-term 200-day moving average.
In strong bull markets, the major indexes rise ahead of their 50-day moving averages rather than swim underneath them. You can see the 50-day moving average drawn in red in all IBD daily charts.
A rising 50-day line means that over the past 50 trading session, the general trend of equities is up.
On Monday, due to a big sell-off among leading companies, IBD downgraded the current outlook of the market.
Apple is also part of the Dow Jones industrial average, which rallied 0.4%. Apple is one among nine of the 30 components up 1 point or more. The Dow Jones industrials are price-weighted, so larger-priced stocks have more influence on the index’s daily price changes.
Dow Jones components 3M (MMM), Caterpillar (CAT) and United Technologies (UTX) rose 1 point or more. Within the Nasdaq exchange, Illumina (ILMN) and KLA-Tencor (KLAC) showed unusual strength. KLA is forming the right side of a new choppy base.
The S&P 500 gained less than 0.5%, while small caps outperformed. The Russell 2000 gained more than 1.1% with less than hour to go in the regular session. The S&P SmallCap 600 also gained 1.1%; at 1048, the 600 is up 12% year to date and lies less than 2% below an all-time peak of 1062.
Apple Earnings And Outlook
The Street still expects Apple to post a sixth straight quarter of double-digit profit growth. Analysts see earnings in the June-ended fiscal third quarter rising 31% to $2.18 a share on a 15% jump in revenue to $52.34 billion.
While investors will most certainly be focused on the company’s performance with its flagship iPhone product, keep in mind that the company has done a good job of creating new products and services to broaden its revenue streams.
In the year-ago quarter, Apple’s sales rose just 7%.
Yet since then, the revenue growth rate has accelerated to 12% in fiscal Q4 of 2017, then gains of 13% and 16% in the two most recent quarters.
According to Yahoo Finance, the highest estimate for the top line among 29 equity research analysts is $53.49 billion, up 17.8%. The lowest estimate: $49 billion, up 7.9%.
Investors also will be looking for clues on how Apple may further use its gigantic cash pile to enhance shareholder value. It’s already announced plans to buy back an additional $100 billion worth of common stock.
Apple also pays a quarterly dividend of 73 cents a share. That gives the stock an annual yield of 1.5%.
Read this earlier Stock Market Today column to know more about the current buy point of 194.30 in a new flat base for the iPhone, iMac, Apple Watch and digital services giant.
Square Results On Wednesday
Elsewhere, Square (SQ) fell for a fourth straight session. But the 1% drop to 64.93 was milder than Monday’s 6% sell-off.
The San Francisco-based small-business technology and financial services firm is testing its fast-rising 50-day moving average. Shares have bolted 87% higher since Jan. 1.
Square reports Q2 results Wednesday after the close.
Analysts expect earnings to rise 71% to 12 cents a share. It would mark Square’s first double-digit earnings gain on a per-share basis.
Square earned 6 cents to 8 cents a share in each of the prior four quarters. EPS grew 250%, 600%, 60% and 20% vs. year-ago levels over that time frame.
On the downside, Chipotle Mexican Grill (CMG) gapped lower at the open and dropped as much as 8% to an intraday low of 425.88 before rebounding some. The fast-casual restaurant chain is celebrating National Avocado Day with free guacamole additions to its tacos and burritos Tuesday. But shares dived on news of customers getting sick after dining at a Chipotle location in Powell, Ohio, just north of Columbus.
McDonald’s (MCD) fell less than 1%, while Shake Shack (SHAK) rebounded from an early sell-off to a session low of 59.75 and gained 1%.
Back Below $70
In other markets, West Texas Intermediate near-term futures prices dropped 1.6% to $68.98 a barrel.
Ahead of a new announcement on interest rates expected by the Federal Reserve on Wednesday afternoon, bonds rose in price. The yield on the benchmark U.S. Treasury 10-year bond slipped 3 basis points to 2.95%. That’s still below the May peak of 3.11%.
Yields on the 3-month T-bills and 2-year Treasury notes stood at 2.01% and 2.67%. So, while the long-dated end of the yield curve has flattened some, the overall Treasury bond yield curve maintains a positive shape.
“The FOMC is almost certain to keep rates unchanged this week,” Peng Zhou, managing director of derivatives at $50 billion Sun Life Investment Management, told IBD. “Its statement will likely remain upbeat and support the market-expected September rate hike. Recent data indicated that U.S. growth was solid and the financial condition was stable. While there is rising trade uncertainty, the Fed officials believe that trade concerns have not affected growth.”
“The Fed may tweak language a bit to acknowledge the higher unemployment rate in June. Currently, the market priced in a 92% chance of a September rate hike,” Zhou added.
The fed funds rate, charged on overnight loans from the central bank to Wall Street firms and other big banks, is currently at a target range of 1.75%-2%.
