Investment Commentary – November 6, 2019
Year to Date Market Indices as of Market Close November 6, 2019
• Dow 27,492 (17.86%)
• S&P 3,074 (22.65%)
• NASDAQ 8,434 (27.12%)
• Gold $1,491 (16.07%)
• Oil $57.03 (24.08%)
• Barclay Bond Aggregate (11.25%)
• All World Index (17.20%)
• Fed Funds Rate 1.5 (Two -0.25 rate cuts 2019)
• US Real GDP Growth 1.9 Q3/2019 (Down from 2.0 in Q2)
Apple Stock Higher After Impressive Quarter
Apple, Inc. (ticker: AAPL) reported its fiscal fourth-quarter earnings after the market close on Wednesday afternoon and exceeded Wall Street expectations on both earnings and revenue. Shares initially traded higher by less than 2% after management delivered positive commentary on the critical holiday quarter.
Apple reported fourth-quarter earnings per share of $3.03 on revenue of $64.04 billion. Both numbers beat consensus analyst estimates of $2.84 and $62.99 billion, respectively. Revenue was up 2% from a year ago.
Apple investors also got their first official insight into the performance of Apple’s newest family of lower-priced iPhone 11 devices. Apple reported fourth-quarter iPhone revenue of $33.36 billion, down 9% from a year ago. Analysts had anticipated $32.42 billion. Services revenue was $12.51 billion on the quarter, up 18% from a year ago and ahead of analyst expectations of $12.15 billion.
Apple’s iPhone revenue showed signs of stabilization in the fourth quarter after dropping 13.4% in the third quarter. Apple took a gamble by lowering the prices of its new iPhone models compared to the previous year’s models for the first time. The company’s fourth-quarter numbers suggest that gamble is paying off.
Despite an ongoing trade dispute, Apple reported $11.134 billion in Greater China revenue in the quarter. Thanks to the lower-priced iPhones, Greater China sales were down just 2.4% compared to a year ago.
Wearales, home and accessories revenue was another bright spot on the quarter, up 54.3% from a year ago to $6.52 billion.
“We concluded a groundbreaking fiscal 2019 with our highest Q4 revenue ever, fueled by accelerating growth from services, wearables and iPad,” Apple CEO Tim Cook says in a statement.
Cook says Apple is optimistic about the critical holiday quarter as well, especially ahead of the launch of streaming service Apple TV+ in two days.
Looking ahead, Apple guided for fiscal first-quarter revenue of between $85.5 billion and $89.5 billion, gross margin of between 37.5% and 38.5% and operating expenses of between $9.6 billion and $9.8 billion. The midpoint of revenue guidance was above consensus analyst estimates of $86.92 billion.
Apple has been a market leader in 2019, gaining more than 50% year-to-date in 2019 ahead of this week’s report. Much of Apple’s 2019 gains may be attributed to a relief rally after the tech giant has mostly navigated the trade dispute unscathed up to this point. Unfortunately, Apple is not quite out of the trade war woods just yet given the company is facing potential 15% tariffs on certain Chinese imports, including iPhones and iPads, starting in December.
Bank of America analyst Wamsi Mohan says strong services growth, an aggressive capital return program and tailwinds from 5G wireless network rollouts in 2020 give long-term investors plenty of reasons to be buying AAPL stock.
“There is an overarching concern among growth managers (who are materially underweight) that near term expectations do not matter as much heading into a potentially strong 5G cycle in 2020, which can create an upward bias on any pullback,” Mohan says.
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Roth Conversion FAQ by Lord Abbett
What is a Roth conversion?
When an IRA account owner decides to move all or part of his/her traditional IRA (including SEP and SIMPLE
IRAs) to a Roth IRA, it is called a conversion. Some or all of the funds converted to a Roth IRA are subject to
Current taxation. An individual also may roll over a qualified plan account (e.g., 401(k)) and convert it into a
Roth IRA directly, without opening a traditional IRA account. This transaction too would be a taxable event.
Conversion amounts that represent deductible contributions, and all earnings, are taxed as ordinary, income
Whereas (after-tax) funds based on nondeductible contributions are tax-free.
May individuals younger than 70½ complete the Roth conversion if they otherwise have no earned income?
Yes. Income is not required to be Roth IRA-conversion eligible.
May individuals older than 70½ convert their traditional IRA to a Roth IRA?
Yes. Individuals older than 70½ may convert to a Roth IRA, provided that no portion of the funds converted are
a required minimum distribution (RMD).2 An RMD needs to be paid before the conversion occurs.
Can an individual who is ineligible to contribute to a Roth IRA, make a single contribution to a traditional IRA
and immediately convert it to a Roth (“back-door” Roth)?
The way we read the rules, this can be done. Although, an individual cannot just establish a separate
Nondeductible (after-tax) traditional IRA and then cherry-pick the tax result, if they already own other traditional
IRAs (including SEP, SIMPLE, and rollover IRAs).
Who should consider a Roth conversion?
■ Individuals who have made significant after-tax contributions to their IRA so that the potential tax
consequences are minimal.
■ Individuals who can afford to pay the taxes using assets outside the traditional IRA. Using traditional
IRA assets to pay the taxes can result in a 10% penalty if the individual is younger than 59½ at the time of
■ Individuals who believe that future tax rates will be greater than they are today.
■ Individuals who wish to leave a potential tax-free legacy.
■ S-corporation business owners who have traditional IRAs and losses in their corporation that can be passed
through and deducted on their personal income tax return (1040). An S-corporation owner can deduct only
those losses that are equal to or less than his/her basis (contributions) in the business and that have not
been previously deducted. Please consult with your tax advisor to determine whether you are eligible.
■ Self-employed individuals, partners in partnerships, and members in a limited liability corporation (LLC)
may also have net operating losses that may offset income. This matter should be discussed with the tax
advisor to determine eligibility
Around the web
More new highs: The S&P 500 and NASDAQ climbed to record highs, topping previous records set in late July. The Dow wasn’t far behind, ending the week up 1.4%, less than a tenth of a percentage point below its record high.
Fed drops rates: As widely expected, the Fed cut interest rates on Wednesday by 25 basis points, to a range of 1.5% to 1.75%. FOMC commentary hints that a December repeat is unlikely.
GDP grows but slows: U.S. economic growth slowed in the third quarter, coming in at 1.9% but exceeding economists’ forecast of around 1.6%. Consumer spending kept GDP growth steady, albeit slower than the 3.1% rate in the first quarter.
Earnings trickle in: Roughly three-quarters of companies releasing third-quarter earnings so far—76% of S&P companies—reported earnings per share above analysts’ estimates, according to FactSet. More earnings are to come, yet misses reported by companies like Google/Alphabet may signal lower estimates for 2020.
Jobs well done: Employers added 128,000 jobs in October, handily beating expectations. Unemployment rose slightly to reach 3.6%, hovering just above September’s 50-year low of 3.5%.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.