Shares of Apple had their worst day in six years, down nearly -10% on a cut to revenue guidance the market should have expected. This will be the first time in 16 years that Apple has not met or exceeded its outlook. CEO Tim Cook tried to blame the weakness on the impact of trade tariffs on the Chinese economy but Apple had been facing tough times in the country for several quarters so his statements should be taken with a grain of salt.

Like a bad apple spoiling the barrel, the Apple news had an effect on the entire tech complex, not just the Apple supply chain. Companies from chip-makers to component suppliers (for iPhones and other products) fell hard on the news.

Market Statistics

The salient fact from the Apple guidance is that tariffs are having an effect on China's economy and that of the world. With that in mind, it seems more likely that the two leaders, Xi and Trump, will come to a satisfactory agreement sooner rather than later. We'll see.

The 2019 session of Congress was begun today. The newly elected Representatives and Senators were sworn in and Nancy Pelosi took the gavel as Speaker of the House. She says she hopes that the new Democratic House and President Trump can work together on key issues but also says she'll investigate every aspect of his campaign and administration so I think we'll see a whole lot of nothing important happening over the next two years. There is still no deal to end the government shutdown.

On the economic front, today's data was a mixed bag. The employment data continues to be strong and show sustained improvement in US economic conditions. The manufacturing data continues to be weak and suggests growth is there but also still slowing.

Economic Calendar

The Economy

The Challenger, Gray, & Christmas report on planned layoffs shows that the number of planned layoffs fell in the last month. The December total is 43,884, up 29% from the last month last year and brings the YTD total to the highest level in nearly three years. To mitigate this, 2018 job cuts were centered in tech and retail, primarily due to reorganization and cost-cutting measures, and most came in the fourth quarter. While concerning, we don't want to see people losing their jobs in a bull market economy, this data is counterbalanced by planned hiring. The number of planned hires for 2018 was well over 1 million and the second strongest year for hiring on record. Growth may be slowing but the labor market economy is not shrinking.

Initial claims for unemployment rose 10k, slightly more than expected, to hit 231,000. The previous week's figure was revised up by 5,000 making this week's jump closer to 15,000. The four-week moving average of claims fell -500 to 218,750 but I expect it to begin moving higher in the next week or so. On a not-adjusted basis, claims rose 11.1% versus an expectation for 6.4%, not-adjusted claims are down -7.8% over the same time last year.

The data is still good, it is still consistent with labor market health, but recent volatility makes it look like the downtrend in claims may be over. The good news is that we are about to enter a period of seasonal hiring that may bring the claims figures back in line with the trend.

The continuing claims figure rose 32,000 to hit 1.74 million. The four-week moving average of continuing claims rose 26K to hit 1.703 million. These figures are also consistent with tight and healthy labor markets but recent activity suggests the downtrend in claims may be over. Even if it is it's not a worry, tight labor conditions are in effect and a sign of robust economic activity within the US. When the continuing claims figures start to trend higher I will be worried.

The total number of claims rose 41,778 to hit 1.794 million. This increase is in line with expectations, seasonal and long-term trends so is not a concern. Over the next few weeks, I expect to see this figure spike before topping out near 2.30 million. If the total number of claims moves significantly higher than 2.3 million, or if the number of claims does not fall back to set a new low, it will confirm a change in labor trends. The caution is that a change in labor trend may mean an end to labor market tightening, it won't necessarily mean an end to expansion (although it could).

The ADP report is contradictory to any negative implications read into the Challenger or jobless claims numbers. According to ADP, the number of new hires in December topped 271,000, nearly 100K more than expected, but the gains were centered in the services sector. Professional, Education, and Health services account for nearly 130,000 of last month's new hires with job creation spread across all business sizes. On the non-services side of the equation, construction jobs increased by 37,000 and suggest home-building activity is still strong despite weak real estate sales data.

The ISM Manufacturing Survey shows that growth is still present in the US manufacturing sector but at a slower pace than the month before. The activity index came in at 54.1, down -5.2 from last month, on slowing in new orders, production, and hiring. New orders, production, and hiring are all positive and show expansion, just at a slower pace than before. One telling bit of information is that manufacturers say their customer's inventories are too low, a sign that production will continue into the future at high levels even if it doesn't re-accelerate.

Construction spending data has still not been updated due to the government shutdown.

The Dollar Index

The Dollar Index fell a half percent in today's session on growing fear of global slowdown, and weak manufacturing data. The index has confirmed resistance at the short-term moving average and closed in the lower half of its recent trading range but does not yet look like it will move lower. The indicators are mixed, suggesting range-bound trading will continue and do not give much evidence a major move is on the way. Support is still near $96, resistance is now the short-term EMA.

The Gold Index

Gold prices moved up fear and safe-haven safety seeking. The spot price moved up about 1% to close above $1,290 for the first time since mid-spring. The metal looks like it will keep moving up and may break above $1,300 in the next few session. A move above $1,300 would be bullish and may take the metal up to $1,325 in the near to short-term.

The Gold Miners ETF GDX gained more than 2.0% in today's trading and set a new high. The ETF was capped at resistance, closing just below $21.50, but it is indicated higher. A move up may take the ETF to $22 in the near-term. Support is near $21 should the ETF decide to pull back.

The Oil Index

Oil prices were flat in today's session as traders weigh OPEC production cuts versus global slowing. The price of WTI is now hovering just below $47, a level that may prove to be resistance in the next few sessions. The indicators are bullish and suggest upward drift may continue, the risk is that the short-term moving average is just above today's closing level and could easily push the price lower until there is an actual reason to get bullish on oil again. Support for WTI is near $43.50, a fall below there could take it down to the $30 range.

The Oil Index shed about -2.0% in today's trading. The outlook for profits in this sector is hurting now that oil prices are so low and could keep the index under pressure for the foreseeable future. The indicators are still bullish so upward drift in prices is expected in the near-term. A move up may reach the short-term moving average, near 1,230, before hitting major resistance. A break above 1,230 may be bullish if supported by oil prices, but not likely to come very soon. Support is near 1,100, a break below there would be bearish.

In The News, Story Stocks and Earnings

Apple shed -10% on Tim Cook's profit warning. This, along with other signs the company is not selling enough phones (no more sales data) has analysts more than worried as it raises the question, can Apple survive. One analyst has gone so far as to compare Apple with Nokia, the once great maker of cool cell phones that is now a memory of tech-that-was. It is not likely Apple will go the way of the wild buffalo but it is certain the company has exit the growth phase and is now muddling along like (most) everybody else.

In related news, CEO Tim Cook says he's worried about traveling to China, he's afraid he might get arrested in retaliation for the Huawei arrest a few weeks ago. The official US stance is that travelers should use extreme caution.

The chip-makers were hit hard by the Apple news. The assumption is that if Apple can't sell phones, and global growth is slowing, the need for new tech will dissipate and the heart of all things tech are the chips. The Semiconductor index fell nearly -6.0% on the Apple news and is now sitting just above the 16-month low. The indicators are mixed so sideways trading at current levels is more likely than not, the caveat is that there is some divergence in MACD that suggests the index may also be at or near its bottom.

Bristol Myers Squibb has announced a deal to acquire Celgene. The deal is worth $50 per share plus one BMY common share per share of Celgene for a total near $74 billion. Further, Celgene shareholders will get a contingent right for each share held that entitles them to a payout of $9 per shares when regulatory milestones are reached. BMY will own nearly 70% of Celgene once the deal is completed, expected to close in the third quarter of this year, and will pay for it with cash-on-hand and debt. The company, BMY, will also accelerate its share repurchase program in preparation for the close. Shares of BMY fell -6.0%.

The Indices

The indices fell in today's session but the losses were not nearly as bad as they could have been. The major indices shed -2.5% to -3.5%, not a day to disregard, but not a run-for-the-hills sell-off like we've seen other days during this correction.

The day's leader is the Dow Jones Transportation Average with a loss near -3.5%. The transports created a medium sized red candle moving down from Wednesday's high and engulfing the previous four candles. Price action suggests a move lower is coming but the indicators do not agree. Both stochastic and MACD remain bullish although momentum is very weak. If the index continues to move lower in tomorrow's session support may be reached at 8,635, a move below there would set a new low for the series and possibly lead the index much lower.

The NASDAQ Composite posted the second largest decline at -3.04%. The tech-heavy index created a medium sized red candle moving below the 6,500 level but support kicked in well before the low set last week. Tomorrow may see this index continue lower as fallout from the Apple news makes its way through the market. The indicators, however, do not support this and suggest a bottom may be forming (but it's still too soon to tell for sure). A move lower may find support near 6,200, a move below there would be bearish.

The Dow Jones Industrial Average closed with the third largest decline in today's session. The blue-chip index fell about -2.80% to create a medium-sized red candle. The candle shows sellers are still present and ready to take profits at the drop of a hat but the indicators are not in agreement with that sentiment. The stochastic and MACD are consistent with a bullish shift in momentum that may indicate a rebound, relief rally, or reversal is in the works. A move lower from today's close may find resistance near 22,000 or 21,700, a move below 21,700 would be bearish.

The S&P 500 posted the smallest decline but still a sizable loss at -2.47%. The broad market index created a medium sized red candle that looks like it may precede a retest of support. A move lower is likely given the day's news (Apple) and fear of slowing global economics with a target for support near 2,350. The indicators are bullish but set up to fire a bearish trend-following signal should a deep decline ensue. A move below 2,350 would be bearish and could take the index down to 2,200 or lower.

A reader asked me a question last night. Given my outlook for 2019 and the effect of Apple's announcement on futures trading do I think today was the day to buy? My outlook for 2019 is bullish, I don't see the market continuing to sell off with positive GDP growth, positive earnings growth, earnings growth reacceleration, stock repurchase programs, and dividend increases on tap. Was today the day to buy? I don't know about that but I don't think it was a bad day for long-term oriented positions, especially if they pay a nice yield and have some non-cyclical appeal.

I don't think the bull market is finished, I do think growth stocks are going to have a hard time until US/China trade relations can regain solid footing. I am firmly bullish for the long-term and neutral in the near-term. PS, the fourth quarter earnings cycle gets started in a few weeks and that may be what the bulls need to take back control of the market.

Until then, remember the trend!

Thomas Hughes