scarlet: u.s. stocks closing next. joe: the question is "what'd you miss?" twitter may pose profits in just minutes. earnings, howorts much have quarterly sales dropped? >> data of the democratic national convention ahead of bill clinton's prime time speech. we begin with market minutes. the s&p and dow seeing volume, trading, 9% above the daily average, so some direction? not much. trading within a 13 point range. moving between gains and losses all day.

trading between gains and losses for the last week and a half. dispersionnteresting , telecoms, materials, but headline moves on any major indices not very much. >> some stocks weighing on those moves, apple weighing on the nasdaq. there was some support out there. jetblue did an ounce, industrials a real strength to the nasdaq, this was one of them. telecoms led down, weak as a group, weighing on the s&p. izon, weeks of viagra week a subscriber growth. we had an auction of

five-year government bonds, and the basic cover ratio was the weakest in several years. we also had a week to year , not a lot of appetite to buy new bonds. also, a one-month chart of the 2-10 spread, flattening again lately. it's deep and a little bit, but with the short-term demand weakening, short-term yields rising, long-term going down we see that flattening. standout, the a big performer, big mover, strengthening 1% against the majors. the reason was that the japanese finance minister said the government has yet to decide on the size of a fiscal package, refuting a report that it would

include ¥6 trillion of new spending. that is crude oil there. on the commodities front, crude tumbled, but came back as the chart showed, down less than 8/10 of 1%. iron ore having a big rally, very controversial commodity, some saying stockpiles are growing dramatically, over a 5% gain, but people are skeptical whether that can be maintained. let's take a deep dive into the bloomberg. joe, get us started. joe: this chart is so awesome. it is still amazing. this is a chart of egg electricity prices in new york city. -- of electricity prices in new york city. the rain was leaking in the

subway, very hot, you could see electricity prices explode yesterday afternoon. there it is around 3:00, prices soared, then came back down again. it shows the sensitivity to the weather from traded electricity. a fascinating chart there. >> that was before the storm had hit. joe: right. you could see the warning and everybody anticipated it. makinge oil no longer new lows, stability around the mid-40 range. it seems like a market where everybody loses. the white line is wti. it has recovered from january lows, but trending down again since june, putting pressure on upstream companies. falling gasoline prices, the can see thatu

falling gasoline prices are risk squeezing refiners. 45% drop ina second-quarter earnings, producing and refining division suffered. valero net income dropped. see ae are starting to lot more of these charts pointing out the underlying factors that are not so supportive. >> all that margin pressure. we've been talking about strength in existing and new home sales, very strong, but take a look at the price, a disappointment. the actual increase in the price u.s. cities rose less than expected for may, 5.2% -- 5.5% was expected. forome ways, this is good buyers and sellers, and what we are seeing is the pace of sales is keeping up.

the big question remains whether inventories will be drawn down. you would expect drawdown and inventories to keep prices robust, but we are seeing some softening. hugely important. joe: let's turn back to today's market action. strategist at bank of america with insight and a preview of tomorrow's fomc meeting. markets close to all-time highs. the fed pose any risks to this rally continuing? market, 17ok at the times, it looks expensive on every single valuation metric. we think a lot of the good news is priced in. just like in february, where we overshot to the downside. i think we have shot to the upside. six expensive,

what is chasing up prices? bond investors who can go after bonds a need to get the yields from equities? is that,k there foreign money coming in, yield money coming in. date,ms up 26% year to utilities up twentysomething percent year to date. that has been the best trade this year. you we look at the markets, want to play that yield story, but do it at a reasonable price. a lot of these yield stories are trading at record highs, but storiese some yield playing at the low end. yous there some catalyst would look for that would create a broader selloff? there does seem to be consensus that violations are high. >> that is one of the issues with have. we see a macro minefield over

the next 3-4 months. adon't think we will hit three handle on oil. that is the psychological point where you get investors worried, but that is just one thing. we have not seen any hard data hit post brexit. , theould see corporate's combination of election uncertainty, brexit uncertainty, some corporate's could pull back investment. >> one function i like to look at is the rotation of different sectors. what it shows is that the sector and proving as technology. the sector leading his health care, which is the green line. else is in the weakening or lagging category. if that significant you have eight out of 10 sectors and a weakening phase while only technology is improving? >> i think part of the reason

that markets rally has been the excitement and data and improving profits dirty -- story. consensus has earnings growth going to a percent this year and 8% -- 14% next year. i think those numbers are unrealistic. i think the market has gotten ahead of itself. if you look at the earnings season coming in and exclude you arend financials, seeing a continued deceleration and profits growth over the last couple of quarters. just so you know, i do like health care and technology. go to a question scarlet asked earlier, the relationship between ultralow nominal yields bonds and as you said relatively high valuation. how close is that relationship? ,s the yields and bonds plunged

by automatically the multiples of the market have to go up, do you buy that is a thing? >> it has been interesting to see the wave of phone calls we are getting from people dusting off their own academic books talking about the fed model. , itou look at the fed model first got published by the fed in 1997. if you look at that chart, it is a 94% correlation. right after that was published, the correlation went massively negative. these fundamentals worked until the people started focusing on them, then stopped working. people are grasping for reasons to be bullish on stocks. are the only ones they can hang their hat on. when you look at the fed model in the various forms, they will

tell you that stocks are expensive. when you look at that and the relationship to future returns, the relationships are week and you are better off relying on the profit multiple. can you look at profit margin expansion is one reason quick as ? >> most of the questions i get our people worried about margins collapsing. you did see margins come down last year, but it was just an energy story. energy markets got crushed. without energy, markets held up fine. i think there are certain sectors that have a lot of margin risks, consumer discretionary with the highs exposure to wage inflation. they are seeing a lot of wage pressures. industrials and materials could get an uplift if we see an improvement in growth, but overall i would not look for a lot of margin expansion.

joe: thank you very much. day two of the dnc convention in philadelphia, bernie sanders calling for solidarity, but have the reason -- supporters been receiving the message? this is bloomberg. ♪

>> breaking news out of twitter, second-quarter adjusted earnings per share $.13 for the quarter compared with consensus estimate of nine cents, an increase from a year ago. topline revenue $602 million for $607uarter, compared with million anticipated.

this is an increase of around 20% from the same time a year booked $502tter million in revenue. 313hly active users million, a little bit higher than what analysts were looking at, 312 million. that user growth has tapered off. the beat on user growth, not really all that impressive. you can see the reaction to the result, stock down 8%, the revenue not that impressive, a quick verdict. >> a quick look ahead to this quarter, $590 million to $610 million for third-quarter revenue. analyst were looking for 681 million, so a huge miss. >> the giving quite a range, but

expectationsering for the next quarter, so monthly users will disappoint. when you look past that to how they are operating the business, not a lot to and excite an investor for growth. >> we might learn more on the conference call. over 10%,tock down 10.5%, investors not impressed. story that jack dorsey was slated to deliver. this oneeep an i on and look out for apple results at 4:30 p.m. eastern time. on apple, buting watching the democratic national convention going on in philadelphia. apple will come in just over 10 minutes. at the, bill clinton center of everything at that convention.

he will address it delegates after the drama-field opening day. is a fantastic speaker historically, is he going to be booed tonight? i find it hard to imagine. last night, after a day there was a fair amount of jeering and booing, by the time we got to prime time, michelle obama, a warren, bernie sanders, the crowd had given up its booing way. vote,l have the roll call and that will be a moment all sides hope there will be catharsis and a final closure

and a big picture of unity. the time bill clinton gets on stage and his capacity for oratorical fireworks, i'm sure he will get through it. joe: you say it is unlikely he likebe booed, but it seems this democratic party and 2016 is different than 20 years ago during his last presidential election. explain to us how much the center of gravity has shifted during that time. vastly. if you think about bill clinton when he ran in 1992, a guy trying to take the democratic party from what a lot of people thought was suicidal liberal excess, losing three consecutive toional elections, and tried move it decisively to the center, free trade, welfare reform, death penalty, all those things where huge in 1992. now the party is further to the

left than it was in 1988. nominatedhe party michael dukakis, a pragmatic liberal from massachusetts. this year we got a socialist and bernie sanders, who was the runner-up, so the party is much more to the left when bill clinton tried to bring it back. clinton nominated by a party further to the left, not putting up any kind of fight. clinton's mainy advisor if he could name one area where she was violating liberal orthodoxy. he could not come up with one. she has gone with a party to the left. that tells a lot. >> i want to go back to the point of unity in the party. floor of the dnc, hillary clinton suspended the roll call and released her delegates to the president. with all this jeering and

booing, what should bernie sanders do for the sake of unity? ofagain, to be clear, a lot the jeering and booing when away by the time we got to prime time. it was raucous at the beginning, then quieted down considerably. they're still have been some protests in philadelphia today, but we don't know yet what will happen on the floor tonight. bernie sanders has a plan whereby he will release his delegates to the vermont delegation and have the vermont delegation unanimously vote for , and that will put her over the top tonight when the roll call happens, so that will be a big symbolic sign of unity and unification. sanders has been doing everything he can to present a unified face for the party and to get his people, his followers, his delegates and supporters, to do what he has

done, which is to side with hillary clinton, but the truth is that sanders has said all along that he is the figurehead of the sanders revolution, but not a top-down authoritarian leader. he said i can't tell my people what to do. what we have seen is that is true. his and oarsmen has influence some of them are saying they are still in favor of these ideas that sanders has champion. we leave what we believe and we will never be for hillary clinton. big there feels like a increase and perceived ahs that trump could win in november. how does that feel and play in philadelphia? look at, i think there is no doubt a lot of people are keying off forecasters and prognosticators looking at the bump trump has seen and some polls.

here and mostne people in the republican party expect hillary clinton to get a bump out of her convention as well and we will be back to where we were in a couple of weeks, a really close race. joe: thank you for the dispatch from philly. up, the chart you can miss before apple reports earnings. this is bloomberg. ♪

scarlet: "what'd you miss?" the: before the apple store. calm before the apple storem.

, inough the vix is calm the past it shot up after the fact. what does that say about the mentality around this report? that applenderstand has forecast another iphone sales drop. they don't want to overreact to something they know the results to. will take aand it few more quarters for iphone sales to pick up again. we will know based on the guidance. to going toused that iphone sales line and that

being the key determiner of how we read the report. you are saying everybody knows that will be unimpressive. what is going to drive guidance? what will cause it to pick up? with a newmes out iphone in the fourth quarter, and the first 10-12 days is the opening window of that launch, so that usually affects significantly given how many iphones apple sells at each launch. services, versus there is a seasonal pattern to iphone sales, but services has not gone anywhere. it is significant in terms of the dollar amount, but this is still a hardware company. >> the chart is showing it is a hardware company at heart, but also showing services are stable

for apple and growing slowly. years, appleof has a big services launch. hardware isfard falling, services are growing steadily. that isa company sustainable. apple still has a services business to fall back on and they are showing new ways to leverage that from the new programs. >> stay with us and help us break down apple results. another look at shares of twitter, trading lower after revenue forecasts disappointed and miss testaments. we are just minutes away from apple results. you can follow all the headlines

in the conference call. this is bloomberg. ♪

>> apple reporting, $1.42 a of one dollares 30 nine cents, a beat, although a drop-off. 40 point 4 million iphones sold in the third quarter, the estimate was 39.9 million. higher than anticipated. -- and cash position $231.5 billion compared with $232.9 billion. the cash level decline. 5.5%ck check of shares, up

. versus 37.9%.38% joe: nice pop in apple shares. 9.9 5 billion versus 9.1 million expected. $595ge selling price at versus $606 expected. million sales 17.9 versus 19.1 billion last quarter. the cashays watch position, 230 1.5 billion, down slightly. >> in terms of revenue for the point $4rter, 42 billion, estimate 42.1 to you in dollars, so a beat, but still represents a decline from the same time year ago, so were

looking at a second straight quarter of revenue decline on a year-over-year basis. droprevious quarter, a 30% in revenue. this is working out to a 14% to 50% range for a second quarter -- fiscal third-quarter drop in revenue. , 4.2 fivef macs 25 million. >> the aftermarket so far positive, outlook for gross margin fourth-quarter narrowing slightly to 37.5. one headline that strikes ininterest, iphone sales up japan, russia, and brazil. because you bring up those markets, china third-quarter

sales $8.85 billion compared with 12.5 billion dollars in the preceding quarter, so a drop off their. on a sequential basis, greater china sales have declined. let's bring in david kirkpatrick. so negative, gloom whereom pervasive, investors to focused on looking backwards? >> i think everybody is learning to deal with the fact that apple is succumbing to gravity. company of the highest order not seen in business history. theiphone is probably hardware product of all hardware products with the highest margins. its sales are declining. to quarters in a row of

declining iphone sales is bad news. not as bad as investors were expecting, but generally bad news. 47.5 billion in fourth-quarter fiscal revenue, a joe: quarter of drop. joe: could this be a fundamentally different time in the maturity of this company that is unlikely to see a revival? >> i think the circumstances are similar to 2013 after apple released the iphone 5s. right now, investors and industry watchers are expecting this year's iphone model to look similar to the current model, so

the first time that apple has used a similar iphone design for two subsequent models. looking ahead to 2017, the 10th anniversary of the iphone, so industry watchers are expecting something bigger there. eps, butnical beat on a 27% drop in profit. that is gravity, but that's gravity moving at a fast clip. >> i think it is serious for a company seen as one of the great growth stocks for most of its recent history. it is not a growth stock anymore. smartphones, which the company essentially invented, are a category that is of decreasing importance. to the degree it is important, it is hugely competitive.

there are great smartphones coming out for $60. that's hard. i have a samsung and an iphone, and the samsung in some ways is better. release saidn the we had a successful launch of iphone se and are thrilled to responses to services we premiered. joe: this company as the charts show is an iphone company. big tech, other players have done some interesting things. amazon, huge and services. the echo one of the most exciting hardware platforms people are talking about. how much is there to blame apple for not having in the last several years gotten another big business rolling? watch, aping the apple new product category with hardware and software for that,

it is a lot of time and resources. i think the apple watch has not paid off. >> i totally forgot about it. we should look at the other products category to see how that fared. i think it was slightly up from last quarter. the current apple watch is nearing the end of it cycle and people are not anticipating a model, but the new software updates previewed in june set the stage for new product introductions such as an echo competitor. i think joe is making an important point. we have seen size it moves, until trying to become a cloud-based services company. when an analyst apple, how seen peak

much blame do we put on not coming up with a new phone and a better plan to get services going? >> you have to assign blame, but utter the not to cliché, if steve jobs was still alive. why didn't apple come up with something like echo. ? i think coming out with a watch, it was actually a better version of a smart watch, but smart watches have been out there for a long time. also, you could look at tesla. tesla has redefined the auto industry by playing a role in autos that apple plating computers. , whyhave all this cash couldn't they have gotten into cars earlier? want to be an aggressive company, that is not the kind of company they seemed to be now. >> emily, what to do learn?

>> interesting joe mentioned he forgot about the apple watch. that was not one of the things singled out on this call. he talked about the success of the iphone, the success and growth of the services business, particular he apple music, and the ipad, 7% growth, and attribute of that to the popularity of the ipad pro, which he says has been a hit with businesses. i want to start on china because we saw a year-over-year decline there. economy has slowed down, the foreign exchange rate has weekend. a very difficult comparison when revenue in china greatubling because of a customer response to the iphone 6 and six plus. the economy is going through a difficult patch, but we look at the potential the market offers over the long-term. he said if you look at what is

happening in the china market, business is down only 2%, so they still see strong potential there. averagething is the selling price of the iphone, .hich has dropped $47 he said the average price was 590 five dollars, a sequential decline of $47. we were expecting that, and during the quarter we had a couple of unique situations that took it down. had to fillthe se, the channel to meet demand, so he said people were still buying the more expensive phone, but they were not being accounted for in this particular quarter. $595 the average selling price of the iphone compared to $642 in the second quarter and 690 one dollars in the first quarter this year, wendy price peaked. trends -- in terms of

trends, he mentioned japan, western europe, thailand, turkey, india, and russia. israll, the iphone se attracting new customers, but it is also attracting upgraders. it is not cannibalizing the original existing iphone business. but businesses growing, people simply like the smaller screen and prefer the smaller screen, and those people are se.ng the he thinks last quarter was the low point and they expect performance to improve in the september quarter, an indication of how a big of a success they expect the iphone seven to be because generally they announced their new iphones in the middle

of september and you get a couple of weeks of sales accounted for for the new phone. stuff.ily chang, great thank you very much. we are keeping an i on apple and other headlines coming out. we will have more on apple after this. this is bloomberg. ♪

>> welcome back to bloomberg. numbers,tching apples moving in a positive way. we have reaction from david kirkpatrick. is the debate of

short-term versus long-term. it beat on the lowered profit and revenue estimates. let's talk about what this company needs to do well. there is some disappointing data in the numbers on china. that putting show their marbles in that basket has been challenging. it has been the single thing driving apples growth, china. now the economy is slowing and it is bad for them. strategy isse smart, lower cost to a broader global audience. .> it is similar to the 5c >> it is a phone targeted to people who cannot afford the standard iphone. be aggressively

coming out with new stuff, but if they can't do that, this is a great thing. price forge selling the ipad beat expectations, $490 per unit. it is about $50 higher than expected, and that shows that analysts and investors were not expecting the ipad pro to have such a big effect. this shows a lot of people are going for higher end models that can support a keyboard and other new features. joe: overall ipad sales came in meaningfully ahead of expectations, nine point 9 million versus 9.1 million. is this a category people could get excited about again? >> it's possible.

just because they beat expectations, we cannot rule out how far the ipad has fallen in the last several quarters alongside the iphone. why hasn't apple come out with a touch screen computer. the surfaces had around for a long time. i don't see why not, and i think we should. should apple development of categories or should it buy new things? we talk about the cash position with $231.5 billion. let's look ahead to what it should be buying. what is it missing out on? >> you could buy anything with that kind of money, but it has to deal with the issue of repatriating that money into the nine states and there are big tax consequences. should buy a they

gigantic cloud company outside the united states. that would be an interesting choice. beetshen apple bought come -- beats, people were surprised. have been more aggressive all these years and buying more companies? no, despite what people are saying about the acquisition, it is similar to previous acquisitions. a company, takes a key technology and resource and applies it to current products. i think we are seeing the same thing with beats. music has always been a key product for them and beats refreshes and remixes their music approach. they have this new apple music platform, so i think the

acquisition still fits the mold. -- aboutould apple pay apple pay? >> apple pay is significant. the apple pay launch at the end of 2014, and they have been gradually rolling out to country after country. apple pay just hit france and the last two weeks, a major market for apple and high-end shopping in the world. nothows the numbers are going to hit high points until a few years from now. our go to tech company results. what did apple learned from its tech peers? >> when we were talking about amazon excellent, what makes it different is that it is a

hardware product that presumes the existence of the clown. it is an interface to the cloud. i don't think apple has any hardware products he would say that about. services, butloud nothing yet has been designed to presuming that, and that is the direction computing is going. joe: fascinating conversation. perspectivet and breaking the earnings down. >> coming up next, apples china problem. this is bloomberg. ♪

phones salesmeting

in china contribute to apples 15% revenue drop today. appleestion is can compete with cheaper chinese brands stealing market share. was oneupon a time it chinese phone maker, now there is a whole slew of them. imagine because we are iphone addicts on the side of the world. number onet the seller of smartphones, not even number two or number three. they come in way behind some of the others, can we bring that up ? there, the orange bar has been steadily four years out , and partle in sales of it has to do with the fact

that these chinese regional companies are making phones that are good enough for the user. not be the best or most beautiful, but good enough, and that is good enough for the worker in china who makes just enough to cover the price of an iphone in a month. >> what does apple need to do? it looks like the market is apple a positive look because of these numbers. it makes you wonder whether we will see this kind of positive reaction tomorrow. would you think apple can do to convince the market that it has a bright horizon? a billionhan putting dollars into the uber version of china? >> exactly. >> it is a complicated story for

them because they see how important this market is and yet -- they aree selling so many iphones, but they have not been able to figure out their brand presence. when you figure one of the top brands in the world, that is apple, but that is not resonating in the chinese market. i was going to ask you about the power of that apple brand. they are not just as big and the chinese markets. >> it is surprising, right? the chinese are brand conscious. they love nikes, luxury goods, add morescious, but ,ervices on to their platforms so they been able to have a more open ended platform that you can build other types of mobile apps on, so they have been a bit more

customizable than apple. >> and that is a good point. tocoming up, which you need know to gear up for tomorrow's trading day. this is bloomberg. ♪

scarlet: china industrial profits coming out tonight at 9:30 p.m. coca-cola earnings tomorrow, 7:00 a.m. eastern, $.58 a share expected. joe: tomorrow, fomc rate decision at 2:00. expects a hike. it is all about what they say going forward. >> bloomberg market special, the

fed decides. we will be an lockup at the fomc meeting. joe: it will be really fun. have a great evening. >> see you tomorrow. joe: this is bloomberg. ♪

john: i'm john heilemann. mark: and i mark halperin. [ringtone] mark: hello? >> can you please keep it down? we are trying to make history here. mark: welcome to day 2 of the democratic national convention here in philadelphia. --ight's headlight headliner, the king of conventions because, former president bill clinton. vote ist, the rollcall about to happen. this is an historic moment for hillary clinton as the nation as she moves frompr