Morning Reads

Morning Reads





A new reality

Apple (AAPL) is slated to kick off its annual Worldwide Developers Conference at 1:00 p.m. in New York and expectations are that it will be a jam-packed affair, with a number of software updates and perhaps one or two surprises. While WWDC never commands as much of a spotlight as Apple's annual iPhone event, new software features and policies can have profound effects, especially as investors grow concerned about traditional hardware sales. Parts shortages, factory shutdowns and supply chain issues remain headwinds for the company, which may need to highlight its high-growth services category to keep shareholders excited.

By the numbers: Analysts expect iPhone revenue to rise 6.2% this fiscal year after soaring 39% in 2021. That compares to services sales that could jump nearly 17% to $80B in 2022.

Wedbush Securities analyst Dan Ives, who has an outperform rating and $200-a-share price target on Apple's stock, noted that iOS 16 updates, some of which include changes to the lock screen, messaging and health features, are likely to capture significant interest, as are changes to the Apple Watch. However, Ives said a new NFL-centric update to its Apple TV+ streaming service might be the update that gets outsized attention. Apple has recently dipped its toe into sports broadcasting with two exclusive MLB Friday Night Baseball games on Apple TV+ each week, and Ives said the allure of adding NFL football to its offerings may be too good to pass up.

Surprises? Apple has used past WWDCs to show off new augmented reality and virtual reality technologies for its various operating systems and it's expected at the very least to do that, according to Ives, who pointed out the strategy is "laying the breadcrumbs" for "the highly anticipated" headset. Some believe Apple may even introduce it at the event, but not show off any high-level detail, while others expect it will be shown off and launched in 2023. It's also possible that Apple could introduce new MacBook Air laptops as it has done at several other WWDCs in the past. (17 comments)

Taser drones

Following the massacre in Uvalde, Texas, which killed 19 elementary school children and two teachers, Congress has sought to act to help prevent similar tragedies from happening in the future. Corporate America is also attempting to come up with some solutions, with Taser developer Axon (NASDAQ:AXON) proposing a drone loaded with electric stun guns that could be used in active shooter situations. The drone would be stationed in school hallways and move into rooms via special vents, with first-responders operating the device from about 40 feet away. AXON shares even rose 6% following the announcement on Thursday.

Snapshot: Axon's artificial intelligence ethics board, a group of experts in technology, policing and privacy, initially expressed reservations about the idea, which quickly spiraled into outright condemnation. In fact, nine members out of the 12-member panel just announced they would resign in a rare public rebuke. Among the concerns was that the system could be used in circumstances beyond shootings or over-policed communities of color. It could also undermine privacy through surveillance, become more lethal if other weapons were added or would require a drone in every single classroom in America.

The new product idea had been circulating at Axon since at least 2019, though it was restricted to computer-generated art renderings and mockups. Usually, the ethics board would debate controversial topics, such as facial recognition, before any such announcements, but they only got the school drone proposal just days before its public disclosure. "Sometimes the company takes our advice and sometimes it doesn't," said Barry Friedman, an NYU law professor who sits on the Axon AI Ethics Board. "What's important is that happens after thoughtful discussion and coordination. That was thrown out the window here."

Damage control: "I want to be explicit: I announced a potential delivery date a few years out as an expression of what could be possible; it is not an actual launch timeline," Axon CEO Rick Smith said in a statement. "Our announcement was intended to initiate a conversation on this as a potential solution, and it did lead to considerable public discussion that has provided us with a deeper appreciation of the complex and important considerations relating to this matter. I acknowledge that our passion for finding new solutions to stop mass shootings led us to move quickly, however, in light of feedback, we are pausing work on this project and refocusing to further engage with key constituencies to fully explore the best path forward." (1 comment)


Abbott (ABT) has restarted production of baby formula at its Sturgis, Michigan, facility that had been shut down for months over contamination concerns that were linked to the possible deaths of at least two infants. The plant is initially producing EleCare and other specialty formulas, but is working to restart production of Similac as soon as possible. In terms of statistics, Abbott's factory produces about one-fifth of all infant formula in the U.S., leaving many shelves empty when it issued a recall and paused operations in February.

Bigger picture: It will take at least three weeks before new formula from the plant begins showing up on store shelves, though FDA Commissioner Robert Califf recently told lawmakers that it could be about two months before formula supplies return to normal levels. Nearly a quarter of formula products remain out of stock in U.S. stores as of last week, according to market research firm IRI. To deal with the shortage, the federal government has been importing formula from overseas under a mission called Operation Fly Formula.

"We understand the urgent need for formula and our top priority is getting high-quality, safe formula into the hands of families across America," an Abbott spokesperson said in a statement. "We will ramp production as quickly as we can while meeting all requirements."

As mentioned previously on WSB: The past two years have shown the downsides of globalization as the COVID pandemic and geopolitical threats upended the supply chain. On the other hand, there are also risks associated with protectionism, like in the case of U.S. baby formula, of which 98% is produced domestically by a trio of companies: Abbott, Gerber (OTCPK:NSRGY) and Mead Johnson (OTCPK:RBGLY). Import duties and restrictions have eliminated competition from Canada and Europe, while nearly two-thirds of all formula is purchased through federally-funded WIC, which only does business with these three domestic manufacturers. (11 comments)

Tariff talk

As the White House struggles to get inflation under control, the Biden administration may make some moves on the tariff front to help ease the price pressures. Over the weekend, Commerce Secretary Gina Raimondo said the lifting of Trump-era duties on China could be a good idea and is currently under consideration. Many economists have found that Chinese exporters generally didn't lower prices to keep their goods competitive - meaning U.S. importers passed the duties on to American consumers - though others say the decision would not target inflation at its core (with tariffs being around since 2018) and would reward an authoritarian government.

Quote: "It depends on what we're talking about, and what kinds of products," Raimondo told CNN's State of the Union. "For example, steel and aluminum - we've decided to keep some of those tariffs because we need to protect American workers and we need to protect our steel industry. That's a matter of national security. There are other products - household goods, bicycles, etc. - that it may make sense."

More waivers are set to be announced today as the U.S. declares a 24-month tariff exemption for solar panels from Cambodia, Malaysia, Thailand and Vietnam. The action would allay concerns for companies that have held billions of dollars in reserves to pay the potential duties, while invoking the Defense Production Act to drive U.S. manufacturing of solar panels in the future. A long-running investigation by the Commerce Department has sought to determine whether the imports from the Southeast Asian countries circumvented tariffs on goods made in China, but it froze significant imports and stalled U.S. projects that could be driving climate efforts in the interim.

New record highs: The national average price for a gallon of gas reached $4.85 on Sunday, according to AAA, doubling from the $2.40 level seen when President Biden took office on Jan. 20, 2021. "We can't take immediate action that I'm aware of yet to figure out how we're bringing down the prices of gasoline back to $3 a gallon," he said last week, "but we can compensate by providing for other necessary costs for families by bringing those down." The administration has pinned the blame of inflated gas costs on price-gouging corporations and Russia's war in Ukraine, while Republicans have pointed to Biden's green policies and advocacy for a clean energy economy. (23 comments)

Today's Markets

In Asia, Japan +0.6%. Hong Kong +2.7%. China +1.3%. India -0.2%.
In Europe, at midday, London +1.4%. Paris +1.2%. Frankfurt +1%.
Futures at 6:20, Dow +0.8%. S&P +1%. Nasdaq +1.3%. Crude +0.7% to $119.65. Gold +0.3% to $1855.90. Bitcoin +5.8% to $31,376.
Ten-year Treasury Yield unchanged at 2.96%

Today's Economic Calendar

12:30 PM Investor Movement Index

Companies reporting earnings today »

What else is happening...

Stock futures rally, but trading could stay choppy into Friday CPI.

Icahn said to drop proxy battle with Kroger (KR) over pig treatment.

No new refineries likely to ever be built again in the U.S. - Chevron (CVX).

Advanced Micro Devices (AMD) inks deal to supply NIO (NIOwith chips.

Grubhub co-founder has eyed Just Eat Takeaway's (OTC:JTKWYU.S. arm.

Battery metal costs, shortages could add years to pursuit of cheaper EVs.

U.S. mortgage holders saw record $1.2T boost in tappable equity in Q1.

Putin warns West on supplies as Russia hits Kyiv with missiles.

Fed won't stop raising rates until payrolls turn negative - BofA.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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