Trader Talk: An Analysis of the Markets this Morning

Good morning,

Markets are called to open flat this morning. This is what's happening today:

1) Apple Inc. tumbled after reporting the slowest profit growth since 2003 and weakest sales increase in 14 quarters, as rising costs and accelerating competition make it harder to sustain revenue expansion;

2) In China, the preliminary reading of a Purchasing Managers’ Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December. The data suggest that China’s expansion at the start of 2013 will equal or exceed its 7.9% clip in the fourth quarter;

3) Fitch revises outlook on Belgium to stable from negative; affirms at ’AA’;

Companies in Europe reporting results today: Nokia, Easyjet, Car Warehouse, Ziggo

Companies in the US reporting results today: Western Digital, Southwest Arilines, Starbucks

Good morning, two main things to speak about this morning. China and Apple. Starting off with China. China’s manufacturing is expanding at the fastest rate in two years. The preliminary reading of a Purchasing Managers’ Index was 51.9 in January, according to a statement from HSBC Holdings Plc and Markit Economics today. That compares with the 51.5 final reading for December. The data suggest that China’s expansion at the start of 2013 will equal or exceed its 7.9% rate in the fourth quarter.

Moving on to Apple, earnings per share came in better than expected, margins came in close to what the street was expecting at 38.6% and so did revenues come in higher. So why are the shares trading 10% lower and why are analysts cutting their price target on the stock? Its all about outlook. Investors are worried that Apple will not comtinue to grow at the same rate it has been growing and the 10% drop came after Apple changed the way it provides financial outlooks to investors, after years of exceeding quarterly profit estimates by an average of 26%. Rather than providing “conservative” forecasts, Apple expects to report results within its predicted range.

Apple is forecasting sales of $41-43bln in Q213 whereas analysts were forecasting $45.5bln and margins are expected to come in at 37.5%-38.5%. In order for the Apple shares to start moving back up, Tim Cook has to give to market more enthusiasm, the same feel good factor that Steve Jobs used to give.

Barclays reduced their price target on Apple from $740 to $575 – Comments from Barclays – 'At first blush, it seems that Apple’s F2Q guidance revenue and EPS guidance is conservative – just like the December quarter’s guidance of $52B of revenue and $11.25 in EPS was, though we acknowledge it is unlikely to alleviate all concerns over iPhones. We believe key topics to be addressed on Apple's conference call include sales trends of the iPhone 5, demand in China and emerging markets, the puts and takes on gross margin, the iPad mini cannibalization rate, channel inventory levels for all products, competition with the low end device market, opportunities for a large screen phone, and what Apple is doing to expand its opportunity in Web Services. While we have concerns about iPhone 5 momentum into March, we still believe that shares can benefit from new iPhone and iPad products slated for the June quarter and believe that the March quarter likely represents the bottom for y/y EPS growth for the year. We also believe that new services are set to be released in iOS 7, which is an increasingly important upgrade given issues with Maps in iOS 6.'

In my opinion I still think Apple is a good investment. They beat expectations in the December quarter and they also had trouble keeping up with demand- but the market wants new products and that is the catalyst that will boost the share price. We have to wait and see what Tim Cook comes up with as we get through 2013 however, I am confident the game isn't over for Apple we just need to get more out of the company and i'm convince it will come.

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Good day and happy trading!

Kristian Camenzuli