Would you pay $775 for an iPhone? For millions of Chinese in the first quarter, the unsubsidized phone was worth it. They helped Apple blow past earnings expectations. Back in the US, consumers have begun to take advantage of low interest rates to buy more houses and more stuff (largely on Amazon). Together, Apple’s strong earnings and signs of an improving US housing market created plenty of enthusiasm – enough for stocks to overcome S&P’s downgrade of Spanish debt. US GDP growth of 2.2 percent for the first quarter was below most expectations, but the shortfall was largely driven by decreased government spending. Consumer activity was strong. Government bonds declined moderately. The price for gold and oil rose.
S&P 500: 1,403 (+1.7%)
MSCI EAFE: +1.2%
US 10-Year Treasury Yield: 1.93% (-0.03%)
Gold: $1,662 (+1.2%)
USD/EUR: $1.324 (+0.2%)
- Sunday – The first round of French Presidential elections suggested socialist candidate Hollande is likely to unseat incumbent Sarkozy. Hollande is viewed as less likely to promote austerity measures.
- Monday – The Dutch prime minister resigned after failing to pass measures to trim the budget deficit.
- Tuesday – Apple released earnings which beat expectations. The stock rose 10 percent.
- Wednesday – Fed Chairman Bernanke said the central bank stands ready to add to its stimulus measures, but left its policy unchanged and upgraded its view of the economy.
- Wednesday – The UK announced GDP growth of negative 0.3 percent, officially entering a double dip recession.
- Thursday – The National Association of Realtors announced pending home sales for March were up 4.1 percent.
- Thursday – Standard & Poor’s cut the credit rating on sovereign Spanish debt to BBB+, citing concerns about bank health.
- Thursday – Amazon announced earnings and revenues ahead of expectations. The stock rose 13 percent in after-hours trading.
- Friday – US GDP growth for the first quarter was announced at 2.2 percent, below most expectations.
A few hundred thousand Apple iPhones a day keeps the bear away. Most of the market gains this week came after Apple announced better than expected results, but main driver of stocks rose was likely strong housing numbers. The National Association of Realtors said new contracts for March were up 4.1%. Also, February sales growth was revised upward from a decline to an increase. It is hard to overstate the importance of the housing market for US growth. It is too soon to call a bottom on housing prices, but sales volume and new construction are gaining momentum.
Obama passed the 50% approval rating this week. No sitting President with a 50 percent approval rating has ever lost reelection. Romney will start to make a lot more noise in coming months, but unless the economy takes a surprising turn for the worse, or there is a scandal, it feels increasingly unlikely he will be successful in November. As we have said before, the stock market probably doesn’t care much who wins. Obama may be better for stock prices in the intermediate term because his reelection would ensure a continuation of Bernanke’s policies. Romney has been fairly explicit that he would seek to replace the Fed Chairman, which would create a lot of uncertainty.