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Sunday February 1, 2015



Amazon Has Profitable Quarter

Amazon.com, Inc. (AMZN) reported its fourth quarter results on Thursday, January 29. The company reported a net profit for the first time in two quarters.

Amazon reported that net sales increased 15% to $29.33 billion. When factoring in an $895 million exchange rate hit, the company's quarterly sales increased 18% compared to the same period last year.

"When we raised the price of Prime membership last year, we were confident that customers would continue to find it the best bargain in the history of shopping," said Amazon CEO Jeff Bezos. "The data is in and customers agree — on a base of tens of millions, worldwide paid membership grew 53% last year — 50% in the U.S. and even a bit faster outside the U.S."

Net income during the quarter was $214 million or $0.45 per share. This was a 12% decrease from the same period last year but an improvement over Amazon's two consecutive quarterly losses during the year.

Amazon has been on the hot seat with investors lately as the company has shown a preference for expensive growth initiatives over profitability. The fourth quarter was the company's first profitable quarter in two periods. Amazon has been heavily investing in its Prime service, new warehouses and new products such as its interactive speaker Echo. Last week the company announced plans to produce feature films for theaters that would then later debut on Amazon's Prime Instant Video service. Though operating expenses remain high, investors were pleased to see Amazon still knows how to make a profit.

Amazon.com, Inc. (AMZN) shares ended the week at $354.53.

Apple Has Record Quarter

Apple, Inc. (AAPL) reported its first quarter results on Tuesday, January 27. The company had a record-breaking quarter that drove the stock price to new heights.

Apple announced that revenue increased 30% during the quarter to $74.6 billion. The company sold a record 74.5 million iPhones during the quarter that fueled the huge revenue gain.

"We'd like to thank our customers for an incredible quarter, which saw demand for Apple products soar to an all-time high," said Apple CEO Tim Cook. "Our revenue grew 30% over last year to $74.6 billion, and the execution by our teams to achieve these results was simply phenomenal."

Net income during the quarter rose to an all-time high of $18 billion or $3.06 per share. This was a 38% increase over $13.1 billion from the same period last year.

Apple's record sale of 74.5 million iPhones was 10 million more than expected. The company's quarterly profit came out to a daily haul of $200 million during the quarter. Increased iPhone sales owed a lot to Apple's bigger-screened iPhone 6, which turned out to be a hit at home and abroad, especially in China. With the success of the iPhone 6, investors are now turning their attention to the release of the Apple Watch in April.

Apple, Inc. (AAPL) shares ended the week at $117.16.

Microsoft Reports Quarterly Results

Microsoft Corp. (MSFT) announced its second quarter results on Monday, January 26. The company's results were underwhelming as personal computer sales continue to decline.

Revenue during the quarter was $26.5 billion. This was an 8% increase over revenue of $24.5 billion during the comparable period last year.

"Microsoft is continuing to transform, executing against our strategic priorities and extending our cloud leadership," said Microsoft CEO Satya Nadella. "We are taking bold steps forward across our business, and specifically with Windows 10, to deliver new experiences, new categories, and new opportunities to our customers."

The company reported earnings per share during the quarter of $0.71. This was a decrease of 9% from earnings of $0.78 per share during the same period last year.

Microsoft has faced challenges in recent years as sales of personal computers continue to fall, lessening the demand for the company's Windows software. The company experienced revenue declines during the quarter in its gaming and commercial businesses. However, Microsoft reported that its cloud business has experienced triple-digit growth for the past six quarters.

Microsoft Corp. (MSFT) shares ended the week at $40.40.

The Dow started the week of 1/26 at 17,668 and closed at 17,165 on 1/30. The S&P 500 started the week at 2,050 and closed at 1,995. The NASDAQ started the week at 4,752 and closed at 4,635.

Treasury Yields Continue Freefall

Treasury prices rose again this week, pushing yields down, as the newest U.S. GDP report showed the economy expanding at a slower rate in the fourth quarter than expected. Combined with ongoing recession and deflation fears in Europe, investors are seeking the safety of Treasury bonds.

As of early Friday, January 30, the benchmark 10-year bond yield fell eight basis points to a 20-month low of 1.68%. The 30-year bond fell to an all-time low of 2.23%.

The fall in bond yields is the result of growing economic fears around the world and at home. It was reported Friday that the U.S. economy expanded 2.6% during the fourth quarter, less than predicted. Expectations were for a larger expansion following a 5% increase during the third quarter of 2014.

"The record low reflects a U.S. economy that's not as hot as many had hoped heading into 2015," said Guy LeBas, Chief Fixed-Income Strategist at Janney Montgomery Scott LLC. "The much-bigger intermediate trend is the amount of money flowing into the U.S. from overseas."

Though the U.S. economy is not expanding at the rate investors would prefer, its bonds are seen as a safer investment than those of other nations, especially in Europe where most countries are under a cloud of deflation and recession. U.S. 10-year yields are 77 basis points higher than other countries in the Group-of-Seven.

Jim Vogel, Head of Agency-Debt Research at FTN Financial, believes U.S. bond yields, while not the most attractive investment, are better than what investors can find elsewhere. "Treasuries stick out not because they are attractive, but because they are the least unappealing," he said.

The 10-year Treasury note yield finished the week of 1/26 at 1.68% while the 30-year Treasury note yield finished the week at 2.25%.

Interest Rates Rebound

Freddie Mac released the results of its latest Primary Mortgage Market Survey (PMMS) on Thursday, January 29. The results show mortgage rates rising this week following reports of increased home sales.

The 30-year fixed rate mortgage averaged 3.66% this week. This was up from last week when it averaged 3.63%.

This week, the 15-year fixed rate mortgage averaged 2.98%. This number was an increase from last week when it averaged 2.93%.

"Mortgage rates ticked up this week for the first time in 2015 following positive home sales reports," said Frank Nothaft, Vice President and Chief Economist at Freddie Mac. "New home sales surged 11.6% in December beating market expectations. Likewise, existing home sales rose 2.4% to an annual rate of 5.04 million homes in December."

The money market fund finished the week of 1/26 at 0.4%. The 1-year CD finished at 0.7%.

Published January 30, 2015
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