America's tech giants power ahead

Posted October 31, 2019 7:39 a.m. EDT

— Happy Thursday. A version of this story first appeared in CNN Business' Before the Bell newsletter. Not a subscriber? You can sign up right here.

Apple's iPhone sales slump isn't going away. The company's saving grace? The success of AirPods, the Apple Watch and Apple Pay.

Overall sales jumped 2% to $64 billion last quarter, driven by a 18% sales increase in Apple's services business, the company said after markets closed on Wednesday. That jump was enough to offset a 9% drop in iPhone sales, my CNN Business colleague David Goldman reports. The services division is now a near $50 billion business: so large, it would be in the Fortune 100 on its own.

Apple was also helped by a 54% surge in sales of wearables, including AirPods and the Apple Watch. The wearables business is now virtually the same size as Apple's Macintosh business — an astounding feat, considering the watch's lackluster debut several years ago, David notes.

All this is enough for Apple to predict a solid holiday season (and it doesn't hurt that trade tensions are lower). The company said it expects sales of between $85.5 billion and $89.5 billion, topping Wall Street forecasts. Shares are up 2% in premarket trading.

"Overall we would characterize this quarter/guidance as a major feather in the cap for the bulls that should drive the stock ... higher over the coming months," Wedbush analyst Daniel Ives told clients in a note.

That doesn't mean the iPhone isn't worth watching. But the sales drop appears to be narrowing, and sales in China have stabilized. CEO Tim Cook predicts that the iPhone 11, which went on sale during the final 10 days of the quarter, will eventually become Apple's best-selling phone.

Remember: The services business will get a boost when Apple TV+ goes live on Friday.

Another win: Facebook said Wednesday that daily active users increased by 9% in the quarter. Revenue grew 29% from the year prior, reaching $17.7 billion. Shares are up 4% in premarket trading.

The Fed may be done for now

The S&P 500 eked out a fresh closing record on Wednesday after the Federal Reserve cut interest rates for its third consecutive meeting, in line with investor expectations. But some of the air has already been taken out of US stocks, with futures pointing to losses when markets open Thursday.

The key nugget: Chair Jerome Powell strongly suggested that the Fed would hold rates steady for the foreseeable future, my CNN Business colleague Donna Borak reports from Washington, ending the string of "insurance cuts" since the summer.

Powell said the current level is "likely to remain appropriate" given the Fed's economic outlook of moderate economic growth, a strong labor market and inflation growing at around 2%. "If that changes, the Fed will respond accordingly," Powell said.

The probability of a quarter point rate cut in December has dropped to just 20%, according to CME Group's FedWatch tool.

Attention now shifts to the next big data releases, which you can be sure the Fed will watch closely. Chief among them: the US jobs report for October, out Friday.

"We advise keeping a close eye on the jobs report as well as data on consumer spending and confidence as these will be critical for the Fed," analysts at Bank of America Merrill Lynch told clients on Wednesday, noting that labor market statistics show signs of a slowdown that could spill over to other parts of the US economy.

On the radar: The Bank of Japan on Thursday kept its policy on hold, but indicated that interest rates could move lower if necessary. Even if central banks are taking a breather, it's clear they're not exiting easing mode any time soon.

Fiat Chrysler and Peugeot make a deal

Fiat Chrysler and Peugeot owner PSA Group are making it happen. The two automakers said Thursday that they plan to combine, forming the fourth largest automaker in the world at a time when the industry faces serious cost pressures.

Shareholders of each automaker would own 50% of the combined operation, which Evercore analyst Arndt Ellinghorst said have a market value of €45 billion to €50 billion or higher by 2021, once the automakers have integrated most of their functions.

The deal gives both companies new muscle: Fiat Chrysler and PSA Group sold a combined 8.7 million vehicles last year — just ahead of GM, which sold 8.3 million. But it's mostly about saving money, as automakers are forced to pump piles of cash into developing fleets of electric and self-driving cars.

"The electrified, autonomous future everyone is waiting for just isn't feasible without automakers merging and forming strategic alliances to share research and development costs," said Jessica Caldwell, Edmunds' executive director of industry analysis.

Up next

You guessed it: More earnings. Blue Apron, Dunkin, Estee Lauder, Kraft Heinz, Royal Dutch Shell, Sanofi, Sirius XM and Wayfair report before US markets open. Pinterest and US Steel follow after the close.

Also today:

The first look at Europe's third quarter GDP growth posts this morning.US personal income and spending data for September arrives at 8:30 a.m. ET.

Coming tomorrow: Time for the latest US jobs report and a fresh look at a closely-watched manufacturing gauge.

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