Most news away from Apple was positive. China’s Mfg PMI rose to 51.9 vs 51.5 (best in 2 years); Europe’s PMI rose to 48.2 vs 47.02 (still below 50 but rising); and, U.S. Jobless Claims fell (330K vs 360K expected & prior 335K). Superficially this looks great but little mentioned was during the first week of January 365.8K people lost their benefits and fell of the rolls. This means the unemployment rate should decline but the participation rate and numbers of people working won’t look good—but, algos don’t look under the hood too much. Also Flash PMI spiked to 56.1 vs 54 previously and Leading Indicators rose (.5% vs .4% expected & prior 0.0%). Lastly Leading Indicators also rose (.5% vs .4% expected & prior 0.00%) and the little noticed Kansas City Fed Mfg Index fell (-2 vs 2 expected & prior -1) which is only notable since its negative reading jives with NY, Richmond and Philly Fed reading.

Overseas markets were doing well until North Korea threatened another nuclear bomb test.

With little fanfare the Fed announces its balance sheet is now in excess of $3 trillion. Let that swirl around in your brain.

Earnings from Netflix (NFLX) allowed the stock to explode 40% even as the company will only breakeven in the next quarter. This likely was the short squeeze from hell in addition to some irrational enthusiasm. Energy (XLE) sectors were higher led by bigger name DJIA components like (XOM) and (CVX).

Risk assets like gold (GLD) and other metals remain out of favor as investors seek alpha via stocks. The dollar (UUP) was flat and bond (TLT) prices weakened as stocks rose.

Apple (AAPL) earnings caused a heavy sell-off in stocks as iPhone sales and margins remain under pressure. Apple’s outsized weighting negatively affected tech (XLK) and (QQQ) dragging these sectors lower. I’ve pointed out for some time that Apple was, by a long shot, the largest holding of hedge funds as of September 2012. Many mutual funds and pension plans held the stock as a “must own”. The inevitable margin squeeze from competition is the final shoe to drop. In China the most popular device is from China Wireless where its Coolpad sells for $100.

Financials (XLF), transports (IYT) and select retail (XRT) sectors led markets higher despite Apple giving the market a flat tire.

Volume overall did pick up on Thursday in two-way action. Breadth per the WSJ was mildly positive. 

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