High expectations, ambiguity on horizon for investors

Two enormous market forces will be in focus for investors in the week ahead. One embodies the hope and optimism of investors. The second reflects ambiguity and caution about the future.

Apple stock has been on a tear. It has more than doubled in price over the past year. It has rallied three times more than the S&P 500 stock index since October. As one of the most widely held stocks by all types of investors — individuals, ETFs, mutual funds — it is a stock that lifts most boats when it’s rallying.

Expectations for Apple are high when the company reports its latest quarterly results on Tuesday after the closing bell. The quarter includes the launch of Apple’s streaming TV service, and sales of the iPhone 11 and Airpods.

An investment in Apple is an investment in the iPhone. The devices remain responsible for more than half of the company’s revenue. But the growth has been fueled by wearables like headphones and watches, and services such as TV and music streaming. Together, those businesses brought in less than half of the revenue of the iPhone in 2019, but they have been growing by double digits year over year. Investors are optimistic that growth trajectory will continue.

The second market force in the week ahead will be the Federal Reserve. Central bankers are not expected to change their short-term interest rate when they finish their meeting Wednesday. The fear of recession has dwindled thanks to the Fed’s three interest rate cuts last year. Those cuts have helped stocks indices hit record highs. Officially, the bank’s interest rate policy is on hold.

However, the Fed has been actively buying short-term government bonds since September as a way to calm the overnight lending market. That market is an important conduit of money between banks, investment funds and others. Some see the Fed’s targeted bond buying as quiet acknowledgment that not all is well in the financial markets.