Apple and Amazon Earnings Highlight Detachment from Real Economy

S&P 500 & Nasdaq 100 Outlook:

• Two of the largest and best performing stocks on the S&P 500 reported earnings Thursday
• Both of the mega-cap companies reported strong revenue, but outlined concerns around coronavirus
• Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities

Apple and Amazon Earnings Highlight Detachment from Real Economy

Two of the most important stocks on the S&P 500 and Nasdaq 100 reported earnings Thursday afternoon, delivering key insight for equity investors. The mega-cap corporations possess significant weighting in both indices and have notable influence over sentiment in the technology sector. Therefore, the strong financial results from both companies is an encouraging sign for further equity gains but a closer look reveals a detachment of corporate performance and economic activity.

Apple and Amazon Lead Stock Rebound

Chart created in TradingView

Apple Earnings Impress, Buybacks Continue

Unlike much of the corporate world, Apple not only delivered a strong quarter with both revenue and earnings per share beating expectations, but also laid out plans to buyback another $50 billion in AAPL stock. Together, the results suggest Apple is surprisingly well-positioned despite coronavirus and its plan to buyback shares runs contrary to the majority of other corporations and may draw criticism, especially if plans to furlough workers emerge. That being said, Apple also declined to issue forward guidance, reducing expectations for the future.

As a result, Apple’s quarterly report delivers a message that may be conducive to further stock gains but not necessarily reliant on revenue growth or increased profitability. Since Apple is a leading member of the Nasdaq and S&P 500, further gains would assist the indices in continuing higher, while compounding concerns of inflated stock valuations.

Amazon Sees Rising Costs Due to Coronavirus

Like Apple, Amazon also offered strong financial findings to the investing public. Unfortunately, the similarities do not stop there. While revenue was strong, Amazon CFO Tom Szkutak said “the company has seen lower demand for discretionary products such as apparel, shoes and wireless products.” Again, the report reveals a divergence in current financial reporting compared to earnings expectations and broader economic developments, this time highlighted through trends in consumer demand.

As the number of unemployed peoples continues to surge and economic output weakens, the real economy may continue to deteriorate. On the other hand, high-flying stocks like Apple and Amazon that are well positioned and have the luxury of delaying guidance may continue to eke out gains. Therefore, the outperformance of these stocks over the broader S&P 500 may continue, but I am dubious of how sustainable this trend might be in the months to come. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX