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S&P 500 futures tilted slightly lower Tuesday morning after the S&P 500 index, Nasdaq composite and Dow Jones once again hit resistance at the 50-day moving average on Monday.
Apple (AAPL), the largest weight in all three indexes, is struggling with its 200-day line ahead of its key earnings report late Tuesday. The Philadelphia Semiconductor Index fell back below its 200-day as Intel (INTC) extended Friday’s negative reversal and Micron Technology (MU) undercut recent lows. Meanwhile, the Treasury yield curve continued to flatten, signaling Fed recession risks as policymakers get set for a two-day meeting.
For a second straight session, the major averages attempted to reclaim the 50-day line near the open only to quickly pull back. The S&P 500 index and Dow Jones have only finished above that key support or resistance level in a handful of sessions since Feb. 2, when the stock market correction was underway. The Nasdaq has only closed above its 50-day on three sessions since March 21.
S&P 500 Futures
S&P 500 futures fell 0.1% vs. fair value. Dow Jones futures lost 0.15%. Nasdaq futures slid 0.2%. Remember that S&P 500 futures and other overnight action often don’t translate into actual trading in the next regular session.
Apple rose 1.8% to 165.26 on the stock market today. But the iPhone maker closed below its 200-day moving average after hitting 167.26 intraday. The Dow Jones component has not been a stock market leader for quite some time. The relative strength line, which tracks a stock’s performance vs. the S&P 500 index, has been slumping since early November. Apple’s RS line is about even to where it was a full year ago.
Analysts expect earnings of $2.69 a share in the March quarter, up 29% vs. a year earlier, according to Zacks Investment Research. Revenue should swell 15.5% to $61.1 billion. That would be the best EPS gain in 10 quarters and the seventh straight quarter of gradually accelerating sales growth. But that’s largely due to the still-new iPhone X product cycle. The fear, backed by warnings from several Apple suppliers, is that iPhone demand is rapidly falling.
Wall Street sees the company selling 53 million iPhone units in the latest quarter, but just 42 million in the current quarter. Analysts expect Apple to sharply boost share buybacks and dividends with repatriated foreign profits. But those capital returns may be priced into the stock already.
Intel Weighs On Chip Stocks
The Philly Sox Index fell 1.1% on Monday, back below its 200-day moving average. Before last week, the chip index hadn’t undercut its 200-day since June 2016. Intel fell 2.1% on Monday. On Friday, the Dow Jones stock shot up 5.2% soon after the open following late-Thursday earnings, but closed down 0.6%. Micron Technology slid 3.3% to an eight-week low. On Friday, Micron reversed from a 50-day line test and plunged 5.2%.
It’s hard for the stock market to rally if chips aren’t taking part. Chips are a huge share of the major averages, especially the Nasdaq. And because semiconductors are in so many products, if chip stocks are struggling that can be a bad sign for a whole slew of end products. Apple’s recent sell-off has come amid a series of chip warnings, with Apple suppliers Taiwan Semiconductor (TSM) and Broadcom (AVGO) among those citing weak smartphone demand.
Treasury Yield Curve Keeps Flattening
The 10-year Treasury yield alarmed investors by topping 3% last week, rising as high as 3.02% before ending the week around 2.96%. But the real worry is in the spread between the two-year yield and 10-year rate. The two-year yield nudged up to 2.49% on Monday, while the 10-year edged down to 2.95%. On Tuesday, both yields rose about 1 basis point.
That Treasury yield curve is the flattest since 2007, heading into the recession.
Investors fear Federal Reserve policymakers may overreact and raise rates too aggressively, hurting the economy and stock market. The Fed begins a two-day policy meeting on Tuesday. The central bank isn’t expected to make any moves, but could lay the groundwork for three more Fed rate hikes in 2018.
Top Stocks With Earnings Due
In addition to Apple, also pay attention on Tuesday to earnings of these elite stocks: Grubhub (GRUB), Paycom (PAYC), Viper Energy Partners (VNOM) and Qualys (QLYS). All four boast best-possible 99 Composite Ratings. All but Qualys are part of the IBD 50 stock list. Paycom is an IBD Leaderboard stock. These four stocks also lead in their sectors and are among the first in them to report.
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