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Investor Movement Index April Summary

This article was originally published on TD Ameritrade's IMX page.

Monthly Summary

The IMX moved lower for the fourth month in a row, ending the period down 8.24 percent at 4.79.

The April IMX period started out with volatility in equity markets, and the IMX took another dip lower. Continuing their behavior for the past year, TD Ameritrade clients were net buyers during the period. However, many widely held positions saw their volatility relative to the overall equity market decrease once again, causing a decrease in the overall IMX score. Volatility of the S&P 500, as measured by the Cboe Volatility Index, or VIX, averaged over 20 for the first five days of April before subsiding near the end of the period.

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April began with equity market volatility, and all three major equity indices moved lower during the first five business days of the month. The S&P 500 traded lower by 2.2 percent during the first day of April, its worst start ever to a second quarter. Markets rebounded during the last three weeks for the period, with the S&P 500 ending the period up 1.10 percent. The NASDAQ Composite Index and Dow Jones Industrial Average also increased during the period, up 0.80 percent and 0.86 percent, respectively. Market volatility was in part driven by global economic concerns following the Trump administration's proposed tariffs on $50 billion of goods from China. Following the market selloff early in the period, the S&P 500 traded at the lowest price-to-earnings ratio in nearly two years compared to expected earnings over the next 12 months, although the metric is still higher than historical averages. Later in the period, geopolitical tensions in Asia seemed to ease and some solid corporate earnings helped push equity markets higher.

Trading

TD Ameritrade clients were net buyers during the April period, buying some volatile names during earnings season. Netflix, Inc. (NASDAQ: NFLX) was net bought for the third month in a row. The company reported better-than-expected earnings during the month, but traded lower after reports it may purchase a movie theatre chain. For the first time in 2018, AT&T Inc. (NYSE: T) was net bought as the company traded lower following an earnings miss due to cord-cutting increases. Spotify Technology SA (NYSE: SPOT) was also a net buy following the company's IPO early in the period. Advanced Micro Devices, Inc. (NASDAQ: AMD), which has seen volatility recently and posted an earnings beat, was net bought. For the fifth month in a row, Amazon.com, Inc. (NASDAQ: AMZN) was net bought. The company traded higher during the period on the back of an earnings beat and analyst upgrades. Square Inc. (NYSE: SQ), which was off approximately 20 percent from recent highs as the company announced an acquisition of another online company, Weebly, was also a net buy.

Additional popular names bought include General Electric Company (NYSE: GE), Alibaba Group Holding Ltd. (NYSE: BABA), and JPMorgan Chase & Co. (NYSE: JPM).

TD Ameritrade clients appeared to take some profits in multiple names during the period. Oil companies were popular sells with ConocoPhillips (NYSE: COP), BP  PLC (ADR) (NYSE: BP), National-Oilwell Varco Inc. (NYSE: NOV), and Transocean LTD (NYSE: RIG) all net sold. Oil prices traded near three-year highs on higher global demand and possible OPEC-led production cuts. COP and BP both traded at multi-year highs, while NOV and RIG reached 52-week highs, enticing clients to take profits in all four names. Alcoa Corp. (NYSE: AA) traded at levels not seen since before the financial crisis following proposed tariffs on steel and aluminum, and was net sold. For the third month in a row, Facebook, Inc. (NASDAQ: FB) was net sold after CEO Mark Zuckerberg testified before Congress regarding the misuse of user data and a beat on earnings.

Additional names sold include Starbucks Corporation (NASDAQ: SBUX), Chipotle Mexican Grill (NYSE: CMG), and Frontier Communications Corp. (NASDAQ: FTR).

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Historical Overview

TD Ameritrade's Investor Movement Index (IMX) has generally correlated with the S&P 500 as clients react to equity price movements, but the index has gone through uncorrelated periods. Beginning in January 2010, when TD Ameritrade started tracking the IMX, the index rose with equity markets until April 2010, when it peaked at 5.40. In May 2010 investors experienced the "Flash Crash" and the IMX began a sharp downward trend. The IMX didn't reach 5.00 again until the S&P 500 was well above April 2010 levels.

The index eventually peaked at 5.56 in June 2011. This peak was immediately followed by a plunge in equity markets, and in the IMX, as the media was dominated by the U.S. debt ceiling debate, S&P downgrade of U.S. debt, and European debt concerns. The S&P 500 began to recover in the fall of 2011, but the IMX continued to decline until it reached a new low at the time in January 2012. As the S&P 500 began to sustain an upward trend in early 2012, the IMX started to rise. In 2013, as economic conditions improved and the S&P 500 climbed to record levels, the IMX rose to the high end of its historical range, finishing 2013 at 5.62, and continued to rise in 2014 amid geopolitical tensions related to Ukraine and the Middle East, until seeing slight declines in October and November.

By the middle of 2015, the IMX had seen increases, as equity market volatility had reduced to near historical levels while the market continued its upward trend. As 2015 ended its third quarter, volatility had returned to markets as global economic concerns and speculation around the timing and trajectory of Federal Reserve rate increases seemed to rattle overall equity markets. This uncertainty continued to play a role in the equity markets through the fourth quarter of 2015 and into early 2016. The volatility accompanying this uncertainty abated in the second quarter of 2016 and remained low until late in the third quarter. Just as it had in 2015, the IMX saw increases mid-year during the period of lower volatility. The IMX continued to climb into the fourth quarter reaching 5.83 in October 2016, its highest point in two years. A brief spike in volatility during November, timed around the U.S. presidential election, coincided with a slight pull back in the IMX, which then ended 2016 at the high end of its historical range.

The IMX started 2017 with an upward trend and reaching an all-time high in March, before pausing in April as lower volatility led to a decrease in the IMX. The momentum resumed in May, with the IMX breaching 7.0 for the first time ever in July of 2017. The IMX took another brief pause in September, before following markets higher and breaching 8.0 for the first time ever in November and ending 2017 at an all-time high. Volatility returned to the markets in early 2018, and the IMX decreased for three consecutive months to start the year.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.

Apple Inc. Results Show Importance of Services Revenue to Face Challenges

One of the strong points of Apple Inc.’s (NASDAQ:AAPL) second-quarter earnings was its Services division. Once again, Apple Services revenue was up, this time by 31% year-over-year. However, a closer look reveals some challenges on the horizon if services like Apple Music and the App Store are going to help take the pressure off iPhone sales in driving future AAPL stock growth.

CEO Tim Cook had this to say about his company’s stronger-than-expected performance: “We’re thrilled to report our best March quarter ever, with strong revenue growth in iPhone, Services and Wearables.”

That Apple Services revenue is worth spiking out. It increased 31% year-over-year. Services is the second-largest division in AAPL, with nearly $9.2 billion revenue for the quarter –more than double what the company made selling iPads. We’ve been pointing out for more than a year that as the smartphone market matures and iPhone sales level out, Apple Services revenue is increasingly important to the bottom line –and to the performance of AAPL stock.

Infographic: Beyond the iPhone | Statista Source: Statista
Services like the App Store, Apple Music, AppleCare, Apple Pay and iCloud storage provide ongoing revenue based on AAPL’s existing pool of iPhone, iPad and Mac users. The revenue isn’t cyclical and doesn’t require convincing someone to buy a $999 iPhone X. And the sustained growth of that Apple Services revenue shows the potential for it to help keep investors on board as the iPhone mad money begins to dry up.

But as pointed out by Reuters’ Stephen Nellis, there are challenges facing this division.

Services Revenue Does Not Guarantee Profit Margins

One of the reasons the iPhone has pushed AAPL stock so high isn’t just the revenue from iPhone sales, it’s the profit margins the company makes on these smartphones. The iPhone X is estimated to have a profit margin of over 60%. Company wide, Apple reported margins of 38.3%. But within the Services division, the margin levels are mixed and likely lower than that average.

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For example, the App Store is considered a higher margin source of Apple Services revenue. AAPL collects 30% of the price of apps and 15% of App Store subscriptions that extend beyond one year. That’s well below the 38.3% average. While iCloud storage likely has margins that are considerably higher than that average, Apple Music likely makes much less. Reuters points out that Apple Music’s primary streaming music competitor Spotify Technology SA (NYSE:SPOT) reported 20% margins for 2017.

Growing Competition, Maturing Business Lines

In addition to lacking the consistently high profit margins of hardware sales, many sources of Apple Services revenue face increased competition and maturing markets.

App Store revenue is projected to continue growing, but at more modest rates compared to the days when iPhone adoption was on fire and new users loaded up on apps. Apple Music has a way to go yet before the streaming music market begins to level off, but it also faces increased competition from the likes of Amazon.com, Inc. (NASDAQ:AMZN), which has been posting impressive growth rates.

Reuters points out that competition not only means the potential for slowing sales, it puts pressure on Apple to spend more to stay competitive — such as the $1 billion it’s projecting to spend this year developing original video content. Higher expenditures can eat into those margins even more.

That’s not to say that Apple Services revenue isn’t going to continue the recent trend of being increasingly important to the company. However, the future impact of the division’s performance on AAPL stock may be tempered by growth that doesn’t keep up with Q2’s 31% rate, and the likelihood of lower profit margins than Apple hardware pulls in.

Meanwhile, Warren Buffett heartily endorsed AAPL stock at this past weekend’s Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) annual meeting, revealing to CNBC that Berkshire bought an whopping 75 million shares of Apple during the first quarter. That adds to the 165.3 million shares Berkshire already owned at the end of 2017, making it one of Apple’s largest shareholders, according to CNBC.

Following on from Apple’s news of a new $100 billion stock buyback program, Buffett told meeting attendees: “From our standpoint we would love to see Apple go down in price.” “We very much approve of them repurchasing shares.”

As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.

More From InvestorPlace 10 Apps, Websites and Companies With More of Your Data Than You Realize Services Will be a Key Driver of Apple Inc. Stock Growth Tax Season Tips: 10 High-Tech Ways to Take the Stres

Market Seems To Lack Direction As Nerves Flare Over Trade

Investors seem to be nervous, unsure of what to take away from the Fed statement this week and not bullish enough to push the market strongly higher despite a bumper earnings season.  Meanwhile, trade tensions with China have bubbled back to the surface, and investors are looking toward an important jobs report tomorrow.

Equities futures were lower Thursday morning, after stocks finished in the red on Wednesday.

Earnings Reaction This Morning

In earnings news after the bell yesterday, Tesla Inc. (NASDAQ: TSLA) reported a smaller-than-expected loss, better-than-forecast revenue and a cash burn rate that was more slow than expected. But the related conference call with Elon Musk and analysts was contentious. Its shares were down more than 7 percent in pre-market trading.

Meanwhile Spotify Technology SA (NYSE: SPOT) stock was down around 10 percent in pre-market trading. Investors appeared disappointed following its first quarterly report since going public earlier this month.

Later today, we’ll see gaming giant Activision Blizzard Inc. (NASDAQ: ATVI) report earnings after the close. In terms of game launches, it was a somewhat quiet quarter for ATVI. The last time the company reported, it wasn’t too long after the release of major games Call of Duty: World War II and Destiny 2.

No Surprises from the Fed

On Wednesday, the big three U.S. indices finished the day lower as investors reconsidered language from the Fed and digested a host of other inputs including rising oil prices, solid results from Apple Inc. (NASDAQ: AAPL) and trade considerations.

Perhaps the biggest news of the day was that, as expected, the Fed left interest rates unchanged as the central bank said inflation is closer to the its long-term goal of 2 percent but seems to be under control. 

Basically, policymakers said what we thought they were going to say and left both bulls and bears to interpret the statement through their own lenses of whether they think the Fed is hawkish or dovish. By the end of Wednesday’s session, it seems that those who see the Fed as hawkish won out, but not by much. Investors could also have been focusing more on the fact that inflation is rising instead of Fed language that it isn’t problematic.

It seems that the market may not get too many surprises from the Fed during the first half of the year. But the last six months of 2018 will be the wild card in terms of more market uncertainty about Fed moves. By early Thursday, the futures market was baking in a 95 percent chance of an interest rate hike by June and about a 71 percent chance of another hike by September. Chances for a fourth hike by the end of the year stood near 40 percent, down from around 50-50 before the Fed meeting.

The dollar, which had been surging vs. other currencies earlier this week, stepped back a bit vs. the euro early Thursday following the Fed meeting. With the futures market projecting lower chances of a fourth rate hike this year, the dollar seemed to settle down a bit, though it remains near its highs for the year.

Bright Spots: Info Tech and Energy

Apple led the information technology sector slightly higher Wednesday, making it one of only two of the S&P 500 Index (SPX) sectors to end in the green.

One statistic from AAPL didn’t seem to get as much market attention as it should have. The company added 100 million paid subscribers over the last year. Overall, Apple is a big psychological driver for the market and Wednesday’s share rise of more than 4 percent added positivity.

Energy was the other S&P sector in the green yesterday, helped by rising oil prices and excitement about the tie up between Marathon Petroleum Corp (NYSE: MPC) and Andeavor (NYSE: ANDV). Devon Energy Corp (NYSE: DVN) was the biggest gainer in the sector, rising more than 5 percent after the company raised its annual production forecast. (See more on oil below.)

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FIGURE 1: DEFENSIVE LINE STRUGGLES The consumer staples sector (candlestick) is the worst performing S&P 500 sector so far this year, as this six-month chart shows. Utilities (purple line), have been tracking higher lately but also remain down for the year. These two sectors are sometimes known as “defensive” ones that investors flock to in tough times, but there’s no sign of that yet. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Jobs Data

As the week comes to a close, investors will be eying an important measure of economic activity, namely the April jobs report. The headline number can often be a trigger for big moves in the market if numbers are substantially above or below expectations. A consensus of economists polled by Briefing.com expect an increase of 190,000 jobs for the month and an unemployment rate of 4 percent. If the consensus number is close to accurate, that would be a big jump from the kind of disappointing March jobs growth. Also consider paying attention to wage growth, as it is a key factor in inflation expectations and is of particular importance given the current tightness of the labor market. Average hourly earnings are expected to rise 0.2 percent, according to a Briefing.com consensus. After hourly wage data comes out Friday, consider watching how Fed funds futures react as market participants use those financial instruments to try to forecast what the Fed might do with interest rates.

Trade Issues Haven’t Gone Away

Worries about a trade war with China seem to have taken a backseat recently amid a strong earnings season. But it’s probably worth bearing in mind that the trade tiff hasn’t gone away. U.S. negotiators are in China this week for talks related to tariffs each country has threatened to slap onto each other's goods. News from those negotiations could move markets. Concerns about the trade conflict may be one reason stocks were under pressure in pre-market trading Thursday.

Oil Seems Conflicted

Oil prices are awash in conflicting data and sentiment that could keep prices sloshing around the $70-per-barrel level. Current headlines are focusing on the Iran nuclear deal. President Trump has to decide by May 12 whether to reimpose sanctions that would likely curb the OPEC nation’s exports. That has provided upside pressure for oil prices, in addition to output restrictions from OPEC and some large non-OPEC producers. A weaker U.S. dollar has also been a boon to prices, but the reserve currency has been making a comeback. This brings us to some headwinds for oil prices. Recent data showed U.S. production hit a record high and U.S. inventories are on the rise. Wednesday’s trade was telling. Government data showed an unexpectedly large build-up in U.S. crude inventories, but oil still managed to gain as the dollar fell and worries about Iranian supply continued.

Information from TDA is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade.