MorningWord 1/28/14: Leadership Spills $AAPL $AMZN $GOOG $SPY

by Dan January 28, 2014 9:16 am • Commentary

Last night’s disappointing iPhone units and forward guidance, that many including myself expected to be buoyed by the recent iPhone launch at China Mobile, was downright bad.  There is no sugar coating the reported data, and the stock’s 7% decline in the pre-market (options market had implied about a 5.5% move in either direction) seems appropriate considering consensus estimates had been nudging higher in the last few weeks.  While some large investors consider the stock a “no-brainer” at $575, $500, and lower,  I suppose there are others who see the company’s reluctance to give up margin in place of market share reminiscent of AAPL’s Mac mishaps in the 1980s that almost put the company six feet under in the 1990s.

Well, AAPL’s earnings are yesterday’s news, and in many ways has been de-coupled from the broader market for more than 18 months.  On Friday we took a look at GOOG in a Name that Trade post (here) heading into their Q4 print this Thursday after the close, and concluded:

regardless of the Q4 results GOOG reports next Thursday after the close, the stock is the most crowded “safe haven” trade that currently exists among U.S. equity investors.

analysts expect the company to re-accelerate earnings this year to 19% growth, after 2 consecutive years of 11% growth year over year, at a time where sales have seen massive deceleration, from 37% in 2012, to 20% last year, a rate that analysts to expect to stay constant in 2014.  This seems to me to be a fairly high hurdle, and with the stock trading at about 21.5x this years expected earnings growth it is not exactly cheap.

just think it is a very crowded trade and priced to perfection, and as we learned in AAPL over the last 2 years, just as massive cult stocks like AAPL can overshoot on the upside they will most likely do the same on the downside.

In what appeared to be a seemingly benign sell off yesterday, relative to Friday, what was notable was some fairly aggressive weakness from prior leadership, including GOOG, which closed down 2% but at one point shortly after the open, was down almost 4% .  Here are the S&P 100 stocks that were down more than 2% yesterday, with their 1 year performance in parentheses:

-GOOG (+47%)

-MSFT (+33%)

-V (+39%)

-BMY (+41%)

-MA (+49%)

-EBAY (-6%)

-GILD (+100%)

-PCLN (+62%)

-CELG (+58%)

-EOG (+31%)

With the exception of EBAY, all of the other stocks have outperformed the broader market, and many of them are the major leaders of the market over the past year.

Add to that the weakness in the Russell 2000 and the Nasdaq relative to the SPX, and it’s clear that the negative start to 2014 has portfolio managers reducing exposures among big winners in the past couple days.

With two of the biggest leaders of the 5 year bull market reporting on Thursday after the close (GOOG and AMZN), the market’s reaction to their earnings reports might be a better tell to the market’s next direction than whatever happens with regards to the FOMC release tomorrow.