A slew of key economic data and the Apple Special Event will be the main highlights this week. Meanwhile, don’t expect anything from the Fed as the Federal Open Market Committee (FOMC) will enter its blackout period ahead of its upcoming September 17-18 meeting.
Apple Special Event
Tuesday, tech giant Apple (AAPL) will be holding its Special Event in Cupertino, California at 1 p.m. ET. Apple is expected to launch new versions of its flagship product - the iPhone, as well as a new Apple Watch. It is still unclear whether or not Apple will offer more information regarding its planned Apple TV+ service.
Wall Street analysts have muted expectations and anticipate few surprises. The new generation of iPhones set to be introduced this week will likely not be the 5G iPhones, which are expected to launch next year.
“Given the remarkable accuracy of the online rumor mill in recent years, we expect relatively few surprises next week,” Bernstein’s senior tech analyst Toni Sacconaghi wrote in a note to clients Thursday. “The main unknown is what incremental disclosures (if any) Apple will offer on its new services, including Apple TV+ (rumored for a November launch) and Apple Arcade (targeted for a "fall" launch).”
One of the main concerns surrounding the most recent iPhone launches have been around the ballooning price. “The increase in iPhone prices has resulted in negative demand elasticity over the last year, leading Apple to undertake widespread trade-in promotions, and to reduce prices in China and India,” Sacconaghi noted. “Despite such actions, iPhone revenues are expected to decline about 15% in FY 19, with iPhone gross margins declining by an estimated 150 bps, despite higher prices.”
But now that the new U.S. tariffs on Chinese imports are in effect, the looming question is around how the new tariffs will affect iPhone pricing going forward. “Our default assumption is that Apple will look to keep prices flat YoY, and potentially absorb the benefit from particularly steep component cost declines in DRAM and NAND (down 50%+ YoY) by keeping memory levels constant and storage pricing at similar levels for similar capacities,” Sacconaghi said.
His research found that if Apple keeps its memory levels and storage pricing consistent with last year, Apple could potentially create a good enough margin buffer to absorb a 10% tariff hit. He pointed out that it is important to note that the 10% tariffs would only apply to iPhone sales in the U.S., which is about 30% of total iPhone volumes.
Sacconaghi made note that investors should keep in mind that Apple’s stock tends to outperform in the one to six month lead up to Apple’s annual iPhone product announcement event. However, “[Apple stock] has exhibited mixed performance in the immediate days preceding the event, as well as in the 1-to-6 months afterwards.”
Apple shares are up 37% this year and 22% since the last Apple event on June 3. The ETF tracking the tech stocks, XLK, is up 33% so far in 2019.
The consumer has been the bright spot in the U.S. economy and has been resilient, even as other signs of a slowdown have emerged. Market watchers will get another read on the health of the consumer Friday when the retail sales data for August is released.
Friday’s report comes at a critical time. With the ongoing trade war and tariffs threatening the U.S. consumer and an upcoming FOMC meeting, market participants will likely watch retail sales closely.
“Another solid report will be taken by the Fed as a signal that consumer spending is holding up in the face of global headwinds, and that the economy is not in much need of additional policy accommodation at this time,” Wells Fargo said in a note to clients Friday. “A big miss, however, would raise concerns that consumer spending cannot sufficiently offset the headwinds from slower global growth and trade uncertainty, and add urgency for the Fed to ease policy further.”
Economists polled by Bloomberg expect retail sales to have risen 0.2% in August.
July’s strong retail sales data surprised investors. Economists are expecting more moderate growth in August. “After a strong increase in July, we expect headline retail sales growth to slow to 0.2% MoM in August,” Credit Suisse wrote in a note Thursday. “Ex auto and gas, we expect sales grew modestly at 0.2% MoM after rising an average of 0.7% in the past three months. Some of the expected slowdown is partial payback after extreme strength in online sales last month. Seasonal adjustments may not have fully adjusted for Amazon's 'prime day' sales, and a slowdown is likely after sales rose almost 3.0% in July.”
Tuesday: NFIB Small Business Optimism, August (103.5 expected, 104.7 in July); JOLTS Jobs Openings, July (7370 expected, 7348 in July)
Wednesday: MBA Mortgage Applications, week end September 6 (-3.1% prior); PPI Final Demand month-on-month, August (0.1% expected, 0.2% in July); PPI excluding Food & Energy month-on-month, August (0.2% expected, -0.1% in July); PPI Final Demand year-on-year, August (1.7% expected, 1.7% in July); PPI excluding Food & Energy year-on-year, August (2.2% expected, 2.1% in July); Wholesale Inventories month-on-month, July final (0.2% expected, 0.2% prior)
Thursday: CPI month-on-month, August (0.1% expected, 0.3% in July); CPI excluding Food & Energy month-on-month, August (0.2% expected, 0.3% in July); CPI year-on-year, August (1.8% expected, 1.8% in July); Initial Jobless Claims, week ended September 7 (215,000 expected, 217,000 prior); Continuing Claims, week ended August 31 (1.675 million expected, 1.662 million prior); Bloomberg Consumer Comfort, week ended September 8 (63.4 prior); Monthly Budget Statement, August (-$161 billion expected, -$119.7 billion prior)
Friday: Import Price Index month-on-month, August (-0.4% expected, 0.2% in July); Retail Sales Advance month-on-month, August (0.2% expected, 0.7% in July); Retail Sales excluding Auto month-on-month, August (0.1% expected, 1.0% in July); Retail Sales excluding Auto & Gas (0.3% expected, 0.9% in July); University of Michigan Sentiment, September preliminary (90.5 expected, 89.8 prior)
Wednesday: Aurora Cannabis (ACB) after market close
Heidi Chung is a reporter at Yahoo Finance. Follow her on Twitter: @heidi_chung.
More from Heidi: