Apple Pressures the Markets; Midterms On Deck

Summary

Podcast Summary: WSJ Your Money Briefing

Episode: Apple Pressures the Markets; Midterms On Deck
Date: November 3, 2018
Host: Charlie Turner (The Wall Street Journal)
Guest: Jessica Menten (WSJ Markets Reporter)

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Episode Overview

This episode focuses on how Apple’s quarterly results and guidance weighed on the financial markets following a volatile October, as well as what investors should watch ahead of the U.S. midterm elections. The expert guest, Jessica Menten, offers insight into market reactions, the importance of upcoming retail earnings, and the role political developments play in shaping market expectations.

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Key Discussion Points & Insights

Market Recap After a Turbulent Week

• Market Performance (00:37):
  • Major indexes ended lower Friday: Dow down 109 points, Nasdaq down 77, S&P 500 down 17.
  • Despite Friday’s losses, all three indexes gained more than 2% for the week following a challenging October.
  • Jessica Menten: “There was a bit of a rebound in the middle of the week. …We did get some still on the tech side at the beginning of the week we saw Amazon over a two day stretch wipe out $127 million from its market value which was concerning… But towards the middle it just seemed as if things were rebounding.” (01:17)
• Apple’s Influence (01:35–02:16):
  • Apple reported its fourth consecutive quarter of record profits and revenues but issued weaker-than-expected holiday guidance, spooking investors.
  • Apple’s decline affects all three major indexes due to its significant weighting.
  • Jessica Menten: “Unfortunately their holiday guidance wasn’t quite as strong as what investors were looking for. …If Apple is lower, that’s going to see broad effects across the market and that’s definitely something investors are going to keep their eye on come Monday.” (01:53)

Expectations vs. Reality for Big Tech Earnings

• Priced for Perfection (02:30):
  • Even strong figures can cause sell-offs if they don’t surpass analyst estimates, especially for prominent tech companies (the “FANG” stocks).
  • Jessica Menten: “It’s almost as if these big tech companies... are priced for perfection. So if they don’t exactly meet everything... especially that outlook in times of a crucial holiday quarter, you’re going to see those movements unfortunately on their stock prices.” (02:30)

Corporate Earnings Peak?

• Sustainability in Question (02:52):
  • There’s growing sentiment that, after nearly a decade-long bull run, corporate earnings may be peaking.
  • The holiday quarter and consumer spending (which makes up 2/3 of the U.S. economy) will be crucial in determining momentum.
  • Upcoming retailer guidance will further clarify the outlook.
  • Jessica Menten: “Now, again, we are in the holiday quarter and… depending on what happens, especially when you think of consumer spending, that's over two thirds of the economy, depending on what can happen with that… that can turn things around.” (02:58)

Good Macroeconomic News Overlooked

• Jobs & Trade Developments (03:40):
  • Despite a strong jobs report and raises—the best in almost a decade—as well as optimistic signs in U.S.–China trade tensions, investors were more focused on tech and market volatility.
  • Jessica Menten: “…when you think of China, trade tensions, how that can affect markets… when you think of them de-escalating, you would think…the markets would be pretty stable… But it looks as if, you know, technology…that unfortunately was not enough.” (03:48)

The Midterms & Market Anxiety

• Investor Focus on Politics (04:24):
  • Investors are keenly watching the midterms. The expected outcome is Democratic House, GOP Senate—a result seen as business-friendly, especially for the construction sector due to potential bipartisan infrastructure deals.
  • A Democratic sweep could unsettle investors, particularly with concerns about deregulation and implications for the banking sector.
  • Jessica Menten: “So in a situation like that, when it comes to infrastructure, companies in construction could really benefit from a bipartisan Congress… But say there is a surprise… and there's a scenario where the Democrats sweep. I think the concern among investors is when it comes to deregulation and how that could impact banks. So that's something to definitely watch...” (04:35)

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Memorable Quotes & Notable Moments

• On Tech Earnings Pressure:
  “It’s almost as if these big tech companies... are priced for perfection.” — Jessica Menten, 02:30

• On Apple’s Outsized Market Influence:
  “…if Apple is lower, that’s going to see broad effects across the market...” — Jessica Menten, 01:53

• On Midterm Market Risk:
  “I think the concern among investors is when it comes to deregulation and how that could impact banks.” — Jessica Menten, 04:56

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Important Timestamps

• 00:37–01:17: Market overview and context after volatility
• 01:17–02:16: Apple & Amazon’s recent impact on indexes
• 02:16–02:52: Analysis of Apple’s “record profits” but weaker guidance
• 02:52–03:40: Discussion on the sustainability of earnings growth
• 03:40–04:24: Macroeconomic news (jobs, trade) vs. market sentiment
• 04:24–05:17: Impact of upcoming midterm elections on investor psychology
• 05:21–06:33: Preview: Fed meeting, key economic data, major earnings reports to watch

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Upcoming Events & What to Watch

• Midterm Election Results: Potential for increased market volatility depending on legislative outcomes (05:27)
• Federal Reserve Meeting: Investors await forward guidance; rate hike expected next month, not this meeting
• Economic Reports:
  • October producer prices
  • Non-manufacturing activity
  • November consumer sentiment
  • Federal Reserve's consumer credit report
• Earnings Reports: From Disney, 21st Century Fox, Tribune Media, Marriott, Avis, Hertz, Eli Lilly, CVS Health, Papa John’s, Wendy’s, Ralph Lauren, Roku, Dish Network, TripAdvisor, Activision Blizzard, Dropbox, Crocs

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Summary

This episode provides a concise yet comprehensive look at why technology stocks—Apple in particular—continue to exert outsized influence on markets during a period of elevated volatility. Despite positive macroeconomic news and hopes for eased trade tensions, tech earnings and guidance reports are the primary drivers of market movement. Investors are also bracing for the political uncertainty of the U.S. midterm elections, with the structure of Congress likely to impact regulation and sector-specific prospects, especially for banks and infrastructure-related firms.

Jessica Menten delivers clear, timely analysis, helping listeners understand both immediate drivers and the bigger-picture signals for the weeks ahead.

Transcript

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[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.

[Charlie Turner]

With your money briefing. I'm Charlie Turner in New York for the Wall Street Journal. Stocks ended lower on Friday, putting a damper on a strong week for the markets. But they did finish off their session lows. The Dow Jones Industrials fell 109 points Friday to $25,270. The Nasdaq composite dropped 77 points, more than 1%. The S&P 500 lost 17. For the week, the Dow, NAS S&P each gained more than 2%. Joining us in our studio is Wall Street Journal markets reporter Jessica Menten. Jessica, after an awful October for stocks, the Nasdaq down over 9% this past week provided some relief for the markets, didn't it?

[Jessica Menten]

Absolutely. There was a bit of a rebound in the middle of the week. We did hear from a number of companies. We did get some still on the tech side at the beginning of the week we saw Amazon over a two day stretch wipe out 127 million from its market value which was concerning at the middle of the week. But towards the middle it just seemed as if things were rebounding for a two, three day stretch. But then of course we heard from Apple after the bell on Thursday and they reported another. This was their fourth straight quarter of record profits and revenue, which sounds great, but unfortunately their holiday guidance wasn't quite as strong as what investors were looking for. And that carried over into day street trading. And so that's something that unfortunately weighed on stocks. Apple is in the three major indexes. So obviously if Apple is lower, that's going to see broad effects across the market and that's definitely something that investors are going to keep their eye on come Monday.

[Charlie Turner]

I thought here we go again, another market sell off. And you know, it struck me that the guidance that they issued, the numbers themselves seemed pretty strong. But I guess since they didn't really surpass analysts previous projections, that was enough.

[Jessica Menten]

Exactly. It's almost as if these big tech companies when you think of especially the Fang stocks, a lot of the analysts keep saying they're priced for perfection. So if they don't exactly meet everything, whether it's earnings, revenue and then especially that outlook in times of a crucial holiday quarter, you're going to see those movements unfortunately on their stock prices.

[Charlie Turner]

Do investors think the good times are over for corporate earnings? They've been strong, but they've probably hit their peak.

[Jessica Menten]

That's definitely the million dollar question a lot of people are asking, especially when you take a step back and look at this bull market now in just over nine years, how long can the good times continue? Now, again, we are in the holiday quarter and I think that depending on what happens, especially when you think of consumer spending, that's over two thirds of the economy, depending on what can happen with that, especially when you look at the jobs numbers, it seems like the economy is on great footing. So if maybe we haven't heard yet from the retailers. Right. And those are coming up in a couple of weeks and they're going to put out their outlooks as far as what they're thinking engaging for this current quarter and I think potentially what we hear from them that can turn things around.

[Charlie Turner]

It struck me that investors in the end sort of ignored the good jobs news and also maybe some hopeful signs on U S China talks.

[Jessica Menten]

Absolutely. Before the bell we saw these great numbers coming from the jobs report, especially when you look at the wage figures, looking at some of the best pay raises in almost a decade. And then when you think of this sort of looming narrative over the markets, especially in October, when you think of China, trade tensions, how that can affect markets and everything, when you think of them de escalating, you would think, you know, the markets would be pretty stable going into this. But it looks as if, you know, technology, again, looking at Apple, it's in all the major indexes and that unfortunately was not enough. But we'll have to wait and see, you know, going forward. What's going to happen next week.

[Charlie Turner]

Jessica, just how fixated are investors on this Tuesday's midterm elections? Could there be a real reaction if, for instance, Democrats retake the House and or the Senate?

[Jessica Menten]

So that's an excellent point. Right now people are thinking the most likely outcome will be Democrats will win the House and the GOP will retain control of the Senate. So in a situation like that, when it comes to infrastructure, companies in construction could really benefit from a bipartisan Congress because that could more likely go through with a split Congress and in a House like that. But say there is a surprise and that does not happen and there's a scenario where the Democrats sweep. I think the concern among investors is when it comes to deregulation and how that could impact banks. So that's something to definitely watch if there is for some reason a scenario where there is a surprise.

[Charlie Turner]

Wall Street Journal markets reporter Jessica Meton. Thanks a lot Jessica.

[Jessica Menten]

Thanks so much.

[Charlie Turner]

This Tuesday is election Day and will monitor not only the midterm voting results but their impact on the financial markets. The Federal Reserve will hold its two day policy meeting Wednesday and Thursday. The Fed's not expected to raise interest rates until next month's gathering, but investors will monitor the end of meeting statement on the economy and the future path of interest rates. It's a light week for actual economic data. We'll get reports on October producer prices and non manufacturing activity and November consumer sentiment. Also due is a consumer credit report from the Fed. It's another busy week for quarterly earnings reports. We'll hear from media and entertainment giants Walt Disney and 21st Century Fox, which shares ownership with Wall Street Journal parent News Corp. Tribune Media also issues quarterly profit numbers. Among others reporting are Marriott, Avis, Budget, Hertz Global, Eli Lilly, CVS Health, Papa John's, Wendy's and Ralph Lauren. Home entertainment companies Roku and Dish Network are due to release earnings. Also scheduled are TripAdvisor, Take Two Interactive, Activision, Blizzard, Dropbox and Crocs. And that's your money briefing. I'm Charlie Turner in New York for the Wall Street Journal.

[Small Business Owner]

Access to affordable credit helps me pay my employees, but I don't really need it.

[Retail Industry Representative]

Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.

[Small Business Owner]

See banks and credit unions help small businesses make payroll. This bill would cut the vital resources

[Retail Industry Representative]

they need while increasing megastore profits. They deserve it, don't they?

[Electronic Payments Coalition Spokesperson]

Tell Congress stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.