Great Damn Production — If the U.S. does one thing well, it’s spending money, and a lot of it. The nation proved particularly adept at this skill last quarter as yesterday morning’s Q4 GDP reading came in well above expert expectations. Safe to say markets were hyped.
In the fourth quarter of 2021, the U.S. economy grew at an annualized rate of 6.9%. Some of you may be expecting me to make some sort of crude and juvenile joke here, but all we can say is that the growth seen was real nice. Not only is that reading triple the increase seen in the third quarter, but it pulled the U.S. economy to annual growth of 5.7%, the fastest acceleration since Ronald Reagan and Terminator back in 1984.
Like we said, spending was the key driver. Business spending on shoring up inventory soared while consumers held no reservations of buying up that inventory fast. These factors were the primary drivers leading to outsized GDP in a quarter still plagued by the spread of a certain virus.
Net exports were up and government spending was down, with the latter being the primary detractor of economic growth. The slowdown of stimmy checks and other government spending programs proved to drag on output, but then again that means it dragged down the federal deficit and national debt as well, so we’ll take it or leave it.
Safe to say markets were excited, with US equity index futures rising across the board. However, as we move further and further from the economic recovery period, this year’s growth will likely be far slower. Still, it’s hard not to be excited by 6.9%, so let’s enjoy it while it lasts.
Apple Earnings — Move over Microsoft, it’s the big dawg’s turn. That sounds wild, but with Apple being roughly $350bn (about the size of Home Depot or Mastercard) larger than Microsoft, it’s all too true. That’s right! Apple just dropped earnings, so let’s take a look.
In short, things are going well over in Cupertino. Apple raked in $2.10/sh on a whopping $123.9bn in revenue… for the quarter. That sales figure is by far the highest in company history and sent shares booming after hours. At the time of writing, the stock had already gained 4.8% post-market.
And it looks like that gain is for good reason. Every single product category came in above sales expectations except one, which was iPads. Remember when people would say the iPhone was dead or didn’t have room to run anymore? Yeah… anyway, iPhone revenue was up 9% to a whopping $71bn, which is $20bn more than Microsoft made last quarter in total. Meanwhile, Mac sales grew 25%, Other Products (Watch, Airpods, etc.) grew 13%, and the gross margin grew to 43.8% on the year.
Arguably, the most important line item, however, was the Services category. It includes iCloud, the App Store, Apple Music, etc., and has become a focal point for investors as Apple branches beyond hardware. See, Microsoft and Apple are still relatively closely valued despite one product line at Apple bringing in more sales than the entire company of Microsoft. Why is that? Simply put, software is valued at a higher multiple than hardware. This makes sense too, as software is higher margin and can be infinitely scalable with marginal cost increases compared to hardware, which still needs factories. Apple reporting 25% annual growth in this category is huge and likely a big driver of the post-market gains we’ve seen.
But, who knows if those gains will be there come 9:30 a.m. The one thing we know about the market, especially lately, is that no one knows wtf is going on.
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