Apple – AAPL Reaches A $900 Billion Market Cap

Arguably the most important company in the stock market, AAPL, reported earnings a day before the iPhone X goes on sale. The company beat estimates for $1.87 per share by reporting $2.07 in EPS. Revenues of $52.6 billion beat estimates for $50.7 billion. Q4 iPhone sales were 46.7 million which beat estimates for 46 million. Gross margins were 37.9% which missed estimates for 38.0%. With the sales of the iPhone X, the gross margins will improve in Q1. Services were $8.5 billion as the iPhone has become the hub where many purchases are made. While many criticize Tim Cook for not innovating like Steve Jobs, the company has done a great job of squeezing more profits out of sales by increasing the average selling price and selling more services. The stock doesn’t care about the abstract term ‘innovation’; it only cares about current and future profits.

The China division had sales of $9.8 billion which was a 12% increase. This is another company showing positive results from the country proving China’s economy is headed in the right direction. The worry is about how the Chinese consumer will react to the high price tag of the iPhone X. Mac revenues were $7.17 billion which was a 25% increase. It continues to grow faster than the PC industry. Finally, the Other Products division had $3.23 billion in revenues which was up 36% from last year. The Apple Watch is a big component of this business. Sales were up 50% for the third straight quarter. The ability of the Apple Watch to work independently of a smartphone allows Android users to buy it as well. This boosts the addressable market and makes the device have more usability. Runners may want to take their watch on a run, but may not want to carry their heavy phone.

Volatility Gone

As you can see from the chart below, the VIX had its lowest month ever in October as we close out one of the least volatile years ever. The October VIX average was 10.12 which beat the July 2017 average of 10.26. The top 4 lowest months are all from this year. With earnings season mostly over and Trump’s pick as Fed chair done, there’s nothing that stands in the way of the stock market in the next 2 months. The Fed’s rate hike is already priced in. Prior to October 23rd, the VIX had closed below 11 for 30 straight days which was the longest streak by far. The longest streak in the prior bull market was 10 and the longest streak in the 1990s bull market was 8. I wish we had data on the VIX from the 1920s because that would be the only period which might rival this current action. Considering the fact that the rolling 12 month volatility in the S&P 500 is the lowest since at least 1928, we might be in the quietest period ever. On Thursday, the VIX fell 2.65% to 9.93 as November tries to take out the October low. The Dow hasn’t had a 1% move in 52 trading days which is the longest streak since at least 1930.