Apple Excites; Global Asset Prices Decline

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Market Digest – Week Ending 9/12

Apple’s new product announcements stole headlines, but major stock indexes declined in an otherwise slow news week. International stocks, especially emerging markets, were hit the hardest. This was partly driven by expectations that higher interest rates in the US will further boost the dollar and make it harder for emerging market countries to sell debt. Bonds, commodities, gold and REITs also declined on increasing expectations for Fed rate hikes earlier next year.

Weekly Returns:

S&P 500: 1,986 (-1.1%)
FTSE All-World ex-US: (-2.1%)
US 10 Year Treasury Yield: 2.61% (+0.15%)
Gold: $1,229 (-3.2%)
USD/EUR: $1.295 (-0.0%)

Major Events:   

  • Monday – General Electric announced it will sell its consumer appliances division to Electrolux for $3.3 billion.
  • Monday – Japan’s Q2 GDP declined 7.1% on an annualized basis, largely driven by a new sales tax which prompted a spike in purchases before the quarter and a subsequent decline.
  • Tuesday – A YouGov poll showed 51% of voters favored Scotland breaking away from the United Kingdom, just two weeks before the election.
  • Tuesday – Apple unveiled two larger screen iPhones, an internet connected watch, and a new payment system that allows users to make in-store purchases with the phone or watch.
  • Tuesday – Facebook’s market cap surpassed $200 billion, making it the 22nd most valuable company in the world and boosting Mark Zuckerberg’s personal wealth to $34.5 billion.
  • Wednesday – President Obama addressed the nation and said the US will begin airstrikes in Syria and Iraq to “degrade and ultimately destroy” militant group Islamic State. He said the US will not send ground troops.
  • Thursday – President Obama said the US and EU would initiate a new round of sanctions against Russia after failing to see evidence Russia had ceased activities to destabilize Ukraine.
  • Friday – Ukrainian President Poroshenko said the EU and Ukraine will ratify an association agreement next week. It is not a full membership.

Our take:

Investors and techies seem to have given Apple’s much anticipated product announcement thumbs up. There is little question the bigger phones will be in high demand. That said, it has been known for a long time that Apple would be releasing bigger phones and a watch, and both are catch up efforts in a way, so I wasn’t overwhelmed.

Typical of Apple, the watch looks good, and they will likely succeed on a fashion level as well as a tech level – which is critical for anything wearable. Therefore, they will probably sell a bunch of watches. But to move the needle, they need to sell a LOT of watches. At $350, I’d buy one in a flash if you didn’t need to also carry your phone around for it to work. But since you do, I’ll wait until it gets better. Those who check their phone every few minutes will probably find the watch fantastic. Otherwise, it may not add much value.

The watch is cool. Personal Capital already has an app for the Android watch, and I imagine we’ll have one for Apple soon. It’s a nice way to check on your money.

The payments concept is great. But it will be run through the traditional credit card providers which are very unlikely to make it exclusive to Apple. Android will catch up very fast. It is too soon to know how much margin the credit card companies are willing to part with.

The success of Apple stock as an investment continues to rely primarily on the iPhone. The new release seems to ensure Apple will keep its lead (in terms of profitability, not volume) for another couple of years at least. In that sense, this week’s announcement was a win. When you are the top dog, there is little room for failure. For the week, the stock rose 2.5% and now represents about 3.5% of the S&P 500.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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