Apple's better-than-expected earnings have driven a $25+ rally in today's share price to over $446 per share. This move carried Apple's market capitalization, currently at $416 billion, past Exxon's to become the most-highly valued corporation in the world. Thanks to the big move in shares of Apple, the NASDAQ Composite gained the most vs. other market indices.
Uninspired by either the President's State of the Union speech or Republican Governor Mitch Daniels' response, markets traded lower from the opening bell. Concerns over continued economic deterioration in Europe and tough-but-toothless comments from German Chancellor Angela Merkel seemed to inspire moderate selling throughout most of the day.
At 12:35 pm EST the Federal Reserve's Open Market Committee released its much anticipated statement, which was almost identical to its December 2011 release. The notable change was that the "exceptionally low levels for the federal funds rate" are now expected to extend "at least through late 2014" as compared to the December projection of "at least through mid-2013." And like a Ben-in-the-box, stock and bond prices sprang up in reaction to the change. This is in keeping with our long-held view that share prices continue to rely on every utterance and funding promise by governments and central banks. Looking forward, markets are now beginning to price in some probability of further quantitative easing (QE3) by the Fed's March or April meeting. At some point, the music has to stop. Until investors return their focus to improving corporate fundamentals, volatility is likely to continue.
The Fed released a new report at 2 pm: a collection of rate expectations by FOMC members covering the next few years. Long gone are the days when the preponderance of analysts would take hours to parse the multisyllabic circumlocutions of Chairman Alan Greenspan. It will be interesting to see how this new approach will be greeted by market participants. While transparency makes intuitive sense, we intuitively suspect that there may have been very good reasons for the more cloaked comments of past Federal Reserve Boards. Does anybody reasonable expect the Fed to stick by its interest rate projections when faced with drastically changed circumstances, which most certainly will be the case? And if not, what new information did we really get today?
From Europe to Washington to Florida to China to Apple and earnings season; investors are barraged by an assault of major stunning stories. Thus stunned, how are mere mortals to decide what is noteworthy and, toughest of all, what should they do with their money? The answer for today, and for many recent days as well, was "buy." Buy stocks and buy bonds.
Farr's View: In tumultuous conditions, head for terra firma. We favor companies with strong balance sheets, cash flow, and earnings growth. Reasonable valuations and attractive dividends point us toward large-cap multi-national stocks. Our strategy has been serving us well, and we will stick with it.
Peace,
Michael