31 Oct

Dow Jones Stares at Record High, Apple Beats Estimates

WRITTEN BY Vineet Kulkarni

The Fed’s much-anticipated rate cut and better-than-expected GDP data boosted the markets on Wednesday. The Dow Jones Index (DIA) rose 0.4%, while the S&P 500 (SPY) rose 0.3%. The uptrend could continue today with Apple’s (APPL) solid fourth-quarter earnings.

Apple’s solid show could boost the Dow Jones

Apple reported another strong quarter and beat the consensus estimates. The company reported an EPS of $3.03 for the quarter, which represents a rise of more than 4% YoY. Apple issued its guidance for the holiday season, which was in line with the consensus estimates.

A flurry of brokerages raised Apple’s target price following its better-than-expected earnings. Cowen and Company raised its target price from $250 to $290, while Evercore ISI increased its target price from $253 to $262. Canaccord Genuity also raised its target price from $260 to $275. Apple stock, the second-biggest component of the Dow Jones Index, could continue its uptrend in the short term.

Facebook (FB) also reported strong third-quarter earnings on Wednesday. The company’s revenues increased 29%, while its EPS grew 20% YoY during the quarter. RBC increased its target price from $260 to $270, while Evercore ISI increased its price from $230 to $235. Facebook forms almost 2% in the S&P 500 Index.

The solid show from Apple and Facebook could be a breather for investors after disappointing earnings from Alphabet (GOOGL) and Amazon (AMZN). So far, the Invesco ETF (QQQ) has risen more than 27% this year.

Fed hints at a pause

The Fed delivered a 25 basis point interest rate cut on Wednesday. The third rate adjustment this year brought the benchmark funds rate range to 1.50%–1.75%. However, the Fed indicated a pause in interest rate cuts. Notably, the Fed said that it will be more data-dependent.

The FOMC remained divided with yesterday’s rate cut. Kansas City Fed Chair Esther George and Boston Fed Chair Eric Rosengren thought that the rates should have remained unchanged. They disagreed with the last two interest rate cuts as well. US Treasury yields fell after yesterday’s rate cut.

Investors expect more rate cuts to act as a booster from the slowing economy. Meanwhile, the Fed’s indication about pausing the cuts might upset investors. The Fed’s next meeting is December 10–11.

The interest rate cuts kept cheering the markets, which led them to record highs. However, investors seemed to have overlooked bigger concerns like the trade war and global slowdown.

Economic data could weigh on the Dow Jones

The ISM manufacturing PMI data for October will be released on Friday. The data will likely make the picture clearer. The factory output data contracted for two consecutive months in August and September. A third straight contraction could make investors anxious. The employment data will also be out tomorrow, which will likely drive the markets.

The country’s GDP grew 1.9% in the third quarter, which beat analysts’ expectations of 1.6%. Strong consumer spending mainly fueled the economy during the third quarter. The stronger-than-expected GDP data might soothe investors’ slowdown worries.

The Dow Jones Index has risen more than 16%, while the S&P 500 has risen almost 22% in 2019. These broad market indexes might continue to rally due to strong tech earnings. However, we’ll have to see how the economic data plays out.

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