Don’t Cry For Me, Argentina

Major stock market averages opened mixed today (Dow +68 pts; SPX flat; Nasdaq -.1%). The financial news media are crying crocodile tears over earnings announcements by Amazon and Apple (see below). Both companies, however, are bravely singing “Don’t cry for me, Argentina.”

Amazon (AMZN) reported third quarter sales and profits below analysts’ consensus projections, and the stock is down about 3% this morning. I guess I should mention that total revenue came in at $110bil. For the first time, the web services (AWS) business accounted for more than half of that tally. AWS, of course, has a much higher profit margin than the traditional online retail operation. Anyway, rising wages and global supply chain delays really dinged retail store profit during the quarter. Management said the company may post zero profits during the fourth quarter. This “warning” rings hollow to me. Amazon is perhaps the only publicly-traded company that can (and does) decide how profitable it will be in any given quarter. It has such a dominant competitive position, generates so much cashflow, and has such an incredibly clean balance sheet that investors aren’t going to turn their noses up at the stock. They simply eat whatever Amazon serves each quarter. If the stock corrects after this announcement, they’ll buy the dip.

Apple (AAPL) reported third quarter sales growth of 29% from year-ago levels, but that was about $1bil shy of Wall Street expectations. Global supply chain problems cost the company about $6bil in sales, having constrained its ability to meet “very robust” demand. CEO Tim Cook said he expects it to get worse in the fourth quarter. So as Barron’s notes, “Analysts can do arithmetic, and they conclude the Apple would have crushed revenue and profit estimates for the quarter if it had goods to sell.” The stock is down 3.5% in early trading.

September’s Personal Income & Spending report revealed resilient consumer spending (up .6% from August) despite lower incomes (down 1% from August). Covid’s Delta variant clearly added some noise to the data, and expiring unemployment benefits took income levels down a bit. But make no mistake, wages are now on the rise for the vast majority of workers. Consumers have been saving and paying down debt through the Covid era, but we should expect the focus to shift toward consumption as the pandemic passes and Christmas nears. The consumer savings rate fell from 9.2% to 7.5% in September; its long-run average is closer to 5%. This report also contains the Federal Reserve’s favored inflation gauge: personal consumption expenditures price index (PCE). The rate accelerated slightly to 4.4% vs. the Fed’s long-run target of 2%.