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Apple Shines as Markets Wait for Fed

Stocks may still feel the shine from Apple’s stunning earnings report Wednesday, as investors await the Fed’s afternoon statement and economic forecasts.

Apple iPhone 4S
Source: apple.com
Apple iPhone 4S

Apple stock soared more than 7 percent in late trading, after the company Tuesday reported record profits driven by iPhone and iPad sales. Apple earnings jumped to a surprising $13.87 per share on revenues of more than $46 billion, well above last year’s $6.43 per share and revenues of $26.7 billion. Analysts had expected profits of $10.10 per share on revenues of $38.9 billion.

“People were surprised by this Apple report. People were leaning in the wrong direction,” said Art Hogan of Lazard Capital Markets.

The Fed is the big event of the week, as it unveils its new communications policy, well broadcast to markets. In addition to its economic forecast, the Fed will now report the forecasts of its individual members for their Fed funds rate targets. Many economists expect the forecasts to mainly show the Fed will be on hold until mid-2014, as opposed to its current stated time frame of mid-2013.

“It’s a historic event from a monetary policy perspective. The Fed is now publishing where they think rates will go in the future,” said Ian Lyngen, senior Treasury strategist at CRT Capital. The Fed releases its statement at 12:30 p.m. EST, its forecast just after 2 p.m. and then Fed Chairman Ben Bernanke speaks with the media.

The economic projections will include two new charts that will provide forecasts from FOMC participants for the Fed funds rate as well as the timing of the first rate hike. The participants identities will not be revealed with their forecasts.

Lyngen said the sequence of events could be tricky for markets and the bond market could react if the Fed forecasts on rates vary from what is expected.

For the most parts, analysts and economists do not expect the Fed to announce another easing program though the Bernanke may reiterate that it remains open to taking further action, if necessary.

Peter Vanderlee, portfolio manager and managing director with Legg Mason’s ClearBridge Advisors expects the Fed to debate but not act on a third quantitative easing program. He said it should continue with ‘Operation Twist’ which entails the Fed buying longer duration Treasury securities with the proceeds from sales of its shorter term holdings.

“They believe by holding down the curve on the long end through operation twist, that it’s good for the economy,” he said, adding it drives investors to riskier assets, like stocks.

Wednesday’s data includes pending home sales and HFHA home price data at 10 a.m. EST.

There are early earnings reports due from Boeing, Conoco Phillips, Novartis, United Technologies, Corning, Delta AirLines, Motorola Solutions, General Dynamics, Abbott Labs, SAP, Wellpoint, Xerox and Southern Co. After the bell reports are expected from Netflix, ETrade, Murphy Oil and Symantec.

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Follow Patti Domm on Twitter: @pattidomm

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