Buyers flock into the Markets as Fed Cuts Rates by 50 Basis Points

The moment the markets were waiting for arrived at last. The Federal Reserve Interest Rate decision. A decision that swung markets heavily into Bullish territory as Interest Rates were cut by a full half percentage point. The Dow finished higher by 336 points while the Nasdaq and S&P were higher by 70 and 43 points respectively. All accounting for gains of over 2.5%.

The morning was highlighted by positive earnings and guidance from Electronics Retailer Best Buy (BBY) and Investment Bank Lehman Brothers (LEH). Best Buy posted earnings of $0.50/share versus the expected $0.44/share and beat the top line Revenue expectations of $8.45Billion by posting a monster number of $8.75Billion. Best buy even strengthened and tightened its outlook for the full year giving the market something to cheer about.

Lehman Brothers admitted that losses from Mortgaged related investments hit earnings but it compensated by posting dramatic tradings gains which more than offset those losses. As such Lehman lifted the entire banking and investment banking industries pushing stock higher broadly, and lifting its own shares 10% in the process. With the Fed's announcement of the 50 basis point rate cut, stocks immediately flew higher and continued to rally towards the end of the day. The biggest investment banks, which report earnings in the near future used the Lehman numbers to push even higher.

Goldman Sachs (GS) made back $13 to break the $200 share price barrier, a gain of almost 7%, while Morgan Stanley (MS) gained almost 6%. Financials came back strong on the news as not only did the Fed cut the interest rate by .5% but also cut the discount rate by another .5%. This was seen as a tremendous positive on the financial sector and investors piled back into these stocks.

Apple (AAPL) made it official this morning that the iPhone was coming to the UK. It announced a partnership with O2 to be the exclusive carrier of iPhone in Britain. Shares were up slightly on the news but drifted with the market before taking off following the rate cut announcement.

While investors were cautious approaching the Fed meeting, there's reason to cheer and smile now! However, the drastic 50 basis point cut should be viewed with still some caution, as once the news sinks in will investors be reading too much into the actions of the Fed and their long term economic effects? Its hard to say at this juncture because the main goal here was to alleviate the pressure from the credit collapse and get people talking economic strength again and not recession. I for one think that having a 50 basis point cut splashed across front page newspapers all across the US will spur optimism and a renewed faith in economic well-being. This is the best thing the Fed could hope for, and its a lot better for the average Joe to be discussing strength rather than a possible oncoming recession.

With the Fed pointing the market in the right direction its time to look at Technology for the holidays and the upcoming earnings seasons. October will be a month worth watching as major names in Tech report earnings and give guidance for their holiday expectations. The guidance game will be one to watch intensely and if Best Buy has given any indication today its that it'll be a holiday filled with shoppers.

Disclosure: Author is long AAPL, BBY, GS

Apple signs iPhone deal with European Carriers in UK, France, Germany

Apple Inc. (AAPL) has reportedly signed three separate distribution deals in Europe for the iPhone. The company has signed up three providers in three different countries - France, United Kingdom and Germany. Investors of Apple have known that a European deal was inevitable so what is the next step for company shares?

Apple's own targets for iPhone were 10 million in sales in Calendar 2008, and this included expectations of being in Europe and Asia throughout the year. So do investors sell the news here as the expectation is that the announcement will be made official at the end of next week at a European conference. The analysts following the company echo my own bullish sentiment regarding the company. The deals with T-Mobile in Germany, Orange in France and O2 in the U.K. are simply a starting point for worldwide iPhone expansion. An expansion that seems to be well on track to not only meet but beat sales expectations. Analysts reports recently on the company track U.S. iPhone sales expectations as well ahead of the stated 1 Million sales goal by the end of the current quarter.

The bigger news for shareholders of Apple with these deals is the terms that Apple was able to secure. A full 10% of voice and data revenues from iPhone customers. This is unprecedented in the wireless industry and it just shows how much of a game changing product Apple and the carriers themselves believe that the iPhone is. Since Apple is able to guarantee steady device sales revenue for the carriers it has the clout to negotiate a bigger pie of the usage revenues. It is well known now that the iPhone sells without any subsidy either at carrier stores or Apple's own retail stores and as such the expectation of a price drop on the handset, regardless of contract, for consumers is virtually nil. This revenue sharing plan that Apple gets from the carriers will become increasingly important to a sustained bottom line for the company and as such will provide Apple with predictable, growing and steady cash flow.

It has been speculated that Apple receives somewhere around 7-10 dollars per month per user from AT&T and with this 10% deal in Europe investors should expect the same influx of cash. When Apple meets its sales goal for the end of 2008 the company will be looking at over 10 million iPhone users netting the company in the neighbourhood of $100Million in monthly revenues, which comes with it a nose-bleed type high margin. That's a significant influx of cash that is as of yet difficult to model for analysts given the company changes to subscription accounting. Through this next phase of Apple growth shares of the company can continue to command P/E ratios and forward P/E ratios in the mid-high 30s and high 20s respectively. In the years to come this can effectively turn a $100Billion electronics juggernaut into a Microsoft sized market entity. Apple shares have fallen some $30/share from their 52 week high with the entire market, but have started to regain some losses. In the months ahead technology sizzles and Apple with its continuous schedule of announcements and innovations will likely be one of the first in line to provide market beating returns.

Disclosure: Author is long AAPL