Welcome everyone to the last week of January. The weather here in Shanghai has taken a turn for the better with several days of clearer skies that are almost blue! In addition the markets have continued their upward trend with earnings season still underway so let’s jump right into it.
First up, the US House has decided to push back the budget debate until May 18, so once again we find the US delaying issues that should be considered urgent! This issue was supposed to be dealt with in February but as delays become more and more common place for the politicians, the markets have learned to accept these decisions as the norm and get on with things unabated. In fact the story barely made the main headlines and was pushed into the archives almost as quickly as it arrived!The big story of the week belonged to Apple and the price of its shares. For those of you who missed it, this is a great Apple
Sharesexample of “Market Expectations” and the results that earnings reports can have on a stock. Apple reported net profits at a record high for the second year in a row, with revenue up 18% at $54.5 billion! Sounds pretty good right? A world renowned company printing data numbers like this should be a positive…. Or should it? Not in this case. For Apple, the headlines following the news of their record high profits, were all about Apple missing expectations and this actually ended up in the stock going down -12%! That’s correct, they reported record earnings yet got shot down for missing expectations!
Sure, there is always an argument to downplay a stock if expectations are missed, but more importantly it should be the fundamentals that are looked at and not only the expectations. We’ve seen this go in the opposite direction before where a company reports losses and declines but gets a boost in stock price because they didn’t lose as much as expected. We’re not saying expectations aren’t important, just that investors should be cautious of movements as a result of expectations because sometimes those expectations aren’t set appropriately and don’t necessarily represent a true reflection of a company’s strength, or likely outcomes in market and investment terms.
WTI Oil So with that lesson under our belts we can also therefore see why Europe is continuing their upward rise, as expectations for Europe have been very low, and the fact that no major negative news has come out of Europe in recent 
months has allowed investors to capture some gains from the Euro region in recent months. It has also led to a stronger focus on Asia, specifically China, as their manufacturing numbers are strengthening and without bad news to over shadow this, most equities and commodities have been able to rise right alongside this. WTI Oil (which we touched on briefly in a recent Money Matters) is up to around $95 a barrel when it was hovering at $85 only a few months ago, and the same upward movements can be seen in iron ore, copper, and other industrial metals used in production.
To briefly recap, a delay in the US debt ceiling will likely postpone concerns out of the US for a few more months.
And Asia Focusalthough Europe still has issues to deal with, the relative calm is indicated to continue without any foreseeable pressing issues arising. So if the US and Europe regions remain relatively quiet the focus is likely to remain on Asia and the region’s growth which in turn will likely continue to drive this slow but steady rise in asset prices.
For Austen Morris Associates’ investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
