Recap: Week Ending April 29, 2016
Equities in the United States were dragged lower last week by a poor performing technology sector while stocks in Canada were pushed higher by strong bids in crude oil and gold. The technology-heavy NASDAQ 100 index was the worst performing index last week, settling down 2.97% to close the week out at 4,341.30. The S&P 500 as well as Dow Jones Industrial Average faired slightly better, finishing the week down 1.26% and 1.28% respectively. The major cause for the selling in technology last week was due to a poor earnings performance on the part of Apple. Revenue for Apple this past quarter came in at $50.6B, down 12.8% from the $58B which was made in Q2 of 2015. Additionally, net income was reported as $10.5B, down 22.8% from the Q2 2015 net income which reported $13.6B. iPhone sales dropped from a previous reading of 61.2M in the second quarter of 2015 to 51.2M in the second quarter of 2016. As Apple is one of the largest companies by market cap in the world, the effects of Apple’s poor performance sent shockwaves through the markets. Having a large market cap makes Apple a large constituent of many indexes which are price or market cap weighted. With regards to price, Apple tumbled nearly 10% in the last three trading days, falling from over $104 on Wednesday to settle on Friday at $93.74. The move lower produced cause for many analysts to lower their annual price targets for Apple. With this being said, despite lowering their price targets, many analysts remain bullish on the company. One person who does not express the same sentiment is that of Carl Icahn. Icahn, an activist investor, purchased a large quantity of Apple in recent times; voicing his beliefs on how the company will expand and produce monstrous returns. However, following this most recent earnings report Icahn reportable has sold his entire stake in Apple to seek a higher return elsewhere. It was recorded that one of the catalysts for this decision was based on the fear and lack of growth which emerged out of the Chinese economy last quarter. As Apple is heavily dependent on China for growth, when one owns Apple they more exposed to risks from China than that of more North American based companies.
The Toronto Stock Exchange Composite Index, or TSX, moved higher for the third straight week as the price of oil once again rallied. Last week oil settled higher by $2.24 or 5.12%. The move higher in the energy product marks the forth straight week of gains. As mentioned in previous weeks, the relationship between the TSX and crude appears to be strengthening as the price of oil rallies. With this being said, crude may very soon run into resistance as price nears an overbought level on the technical analysis indicator know as RSI, or Relative Strength Index. Readings on the RSI below 30 are considered oversold while readings above 70 are considered overbought. On the daily time frame, the crude’s RSI is currently reading 70, producing a slightly oversold level. This is important because the last time which crude hit such a level on the RSI was around March 18 which saw crude tumble about 17% before beginning the rally which it is currently experiencing. One must also take note of the large rally last week in the price of gold which was rather dormant for the month of April. Last week gold rallied $61.20 or 4.96% to settle the week at $1,294.90. The push higher in gold marks new highs for the 2016 calendar year. One of the main reasons for the push higher in gold is due to the fact that the US Federal Reserve is slightly move dovish in their efforts to raise interest rates. A rise in interest rates attempts to prevent any inflation which is occurring in the economy. As gold is known by many as a hedge against inflation, any delayed attempts to stop inflation will be cause for a rally in the price of the precious metal. It will be important to keep an eye on economic releases to examine if inflation is still occurring, providing insight into the next decision by the Federal Reserve.