Stocks Fall Slightly As Tobacco Has A Bad Day

On Thursday, the S&P 500 closed down 0.57%. American Express was up 7.6% and Amazon was up 1.9%, but the consumer staples stocks were slammed as they were down 3.14%. The sector had a rough day because Phillip Morris reported a weak quarter as the heat not burn cigarettes didn’t sell as well as expected in Japan. The stock fell 15.6% which was the biggest decline in a decade. The other consumer staples stocks outside of tobacco where hit by rising long bond yields. This is because they have high dividends; yields on the long bond compete with them. The consumer packaged goods sector had extremely high multiples in the summer of 2016 when the long bond yields were the lowest in history. I think most of the declines in the sector are done because they now have multiples below the market.

Worries About iPhone Sales Dog Apple

The other reason the market fell is because Apple stock declined 2.8%. I don’t like this name as the stock is only off 4.91% from its all-time high despite the very real worries that iPhone sales will disappoint. The latest source of concerns came from Taiwan Semiconductor as the firm stated its revenue guidance range for the second quarter is between $7.8 billion and $7.9 billion which is way below the consensus for $8.8 billion. The main reason for the weakness was high end smartphone demand which analysts expect is caused by Apple. Apple’s earnings are May 1st. Wall Street expects it to sell 42 million to 43 million iPhones.

The company has transition to a services firm because the smartphone market has peaked. This is a smart move because people still use their devices often, they just buy them after longer periods (longer replacement cycle) and the market is saturated. All this points to selling products at lower prices yet Apple raised the price of the newest iPhones. Margins will be hurt if the firm needs to reverse course and lower them next fall, but that could be the most sustainable option.

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