After The Close
The strong momentum that the Dow Jones Industrial Average enjoyed early this week faded today on a disappointing performance and prospects from International Business Machines (IBM – Free IBM Stock Report). The Dow lost a little ground as a result, but the NASDAQ and the S&P 500 turned in slim gains, and market breadth was tilted to the upside.
Earnings took center stage again today and will do so for the next couple of weeks, which is probably a good thing for stocks. Investors had been nervous heading into earnings season over escalating tensions over trade and tariffs among the world’s major economies. But with many companies expected to turn in sizable bottom-line gains, and be able to point to more of the same in the months ahead, Wall Street is likely to greet good news warmly.
So far, that is mostly proving the case, and stocks are being rewarded for good underlying corporate performance. The bar is usually set high, though. Better-than-expected revenues and earnings, plus an improved near-term outlook, are often required to excite the bulls.
Companies are getting more help than usual in the form of lower tax rates. The extra cash can be used to expand operations internally or through acquisitions, and provide the means for higher dividends and increased stock repurchases. The positive aspects of the tax break should last into next year.
These are generally good times, too, with low interest rates and inflation accommodating the business environment. Today’s release of the Federal Reserve’s Beige Book did show selectively higher prices for certain input items, such as steel, that bear watching. But the overall level of prices in the economy has been broadly contained.
The bigger stock market sectors, including technology, consumer cyclical, and industrial names, ought to be major beneficiaries of the positive backdrop now prevailing. Pending earnings releases over the next fortnight will illustrate to just what extent.
Notably, as well, energy shares rallied today, as oil prices climbed to fresh highs. The price of a barrel of oil rose by about $1.80 a barrel in NYMEX trading, to around $68.35 on a further draw in inventories reported by the Energy Department. Oil stocks haven’t been in favor for a while, but that could be changing as oil prices march higher. Several energy names hit new 52-week highs today.
For tomorrow and the coming days, the tone of earnings should carry a lot of weight as to how stocks perform.
– Robert Mitkowski
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
It is all about earnings these days, as the nation's largest corporations are now reporting results for the first quarter of 2018. And for the most part, those metrics, whether sales or profits, are making for very good reading. Reasonably decent economic growth, solid demand, and lower taxes are helping to generate this strong performance, and the stock market is showing its appreciation by pressing ahead nicely thus far this week. To wit, equities rose appreciably on Monday and got out of the gate quickly yesterday, as they followed up the prior session's wire-to-wire win with additional notable gains during the morning.
All told, the Dow Jones Industrial Average, a 200-point plus winner to start the week, roared ahead by 285 points in the early going yesterday and then maintained a solid advantage throughout the morning. In all, a good number of high-profile names reported their results, and, for the most part, the reception was positive. However, there were a few outliers, such as Johnson & Johnson (JNJ - Free JNJ Stock Report), with that stock meeting with less than universal applause, as the company failed to raise its 2018 profit outlook. On the other hand, tech giant International Business Machines (IBM - Free IBM Stock Report) fared well with investors as the stock rose modestly ahead of its scheduled report after the close of trading.
Meanwhile, in other news, there were a pair of key economic reports issued yesterday, following the release of upbeat retail sales data on Monday. In the first issuance, a key survey showed that housing starts had come in at an annualized rate of 1,319,000 homes in March. That was 1.9% above the revised February tally of 1,295,000 residences started. Also, building permits, a more forward-looking metric came in at a seasonally adjusted annual rate of 1,354,000 homes last month, which was 2.5% ahead of the revised February tally of 1,321,000 properties. Both the housing starts and building permits data were well above expectations.
In a survey issued 45 minutes later, the U.S. Commerce Department reported that industrial production rose by 0.5% in March, the second straight solid monthly gain, while the nation's capacity utilization rate inched up from 77.7% to 78.0% last month. Breaking the reports down, we see that industrial production rose by just 0.1% in manufacturing, but surged ahead in the smaller mining and utility sectors. It was a similar story in capacity usage, where manufacturing activity actually slowed nominally last month. Here, as well, activity at the nation's mines and utilities rose measurably in March.
These generally strong surveys likely helped sustain the market's strong showing somewhat. But, as was the case on Monday, the gains were largely tabulated on the backs of strong earnings by a variety of corporations. The market's uptrend would continue over the balance on the afternoon, with particular strength being shown by the technology-laden NASDAQ, which had gained almost 2% as the session wound down. As to the Dow, it sustained a 200-point advance into late afternoon, bolstered by a nifty upward move in shares of UnitedHealth (UNH – Free UnitedHealth Stock Report), which benefited from strong earnings and a raised outlook.
Little would then change down the stretch, as the Dow nudged forward even further, passing the 250-point gain mark as we hit the final 30 minutes, with the NASDAQ doing even better on the aforementioned strength in technology. For the moment, at least, the unsettled political situation at home and overseas has been taking a back seat to earnings, as has the economy, which, as can be seen from the aforementioned data issuances, is performing quite well. So, as the final bell ticked down, we were in a stellar, broad-based rally across most equity groups.
Looking out at the new trading day, shares in Asia were higher in overnight dealings, while in Europe, the major bourses are posting small gains, for the most part. Elsewhere, oil prices are up on lower crude inventories and interest rates are trending a bit higher ahead of some Fed speeches following a pullback in rates yesterday on the 10-year Treasury note. The U.S. futures pointed to a somewhat stronger opening, as traders stateside get ready for a new day.
— Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
