After The Close
The major U.S. indexes struggled on Friday, with the Dow Jones Industrial Average, S&P 500, and NASDAQ 100 each paring gains substantially from what was previously a strong week for equities. Weakness from Apple (AAPL – Free Apple Stock Report) was one of the principal drags on the market, which occurred after a report suggested iPhone sales underperformed in the yet-to-be-reported fiscal quarter. In addition to the technology sector, noncyclical consumer goods shed considerable aggregate value during the session. Overall, declining issues roughly doubled advancing stocks.
On the earnings front, General Electric (GE – Free GE Stock Report) delivered rosy results today. Earnings jumped in the recent quarter, while management’s affirmation of 2018 guidance also benefitted the stock price. But the diversified conglomerate’s roughly 4% jump was offset by aforementioned Apple and several other Dow components, such as International Business Machines (IBM – Free IBM Stock Report) and Caterpillar (CAT – Free Caterpillar Stock Report). Elsewhere, Honeywell (HON) benefitted from a strong performance and raised outlook, while tobacco giant Philip Morris International (PM) further declined following its worst day of trading in a decade amidst a steeper-than-anticipated drop in cigarette sales.
Despite the late-week pullback (the averages fell slightly on Thursday), bullish investors continue to expect a strong quarterly earnings season will help drive equity valuations higher in the coming weeks. So far, about 80% of corporations have beaten consensus profit estimates, with many also raising guidance amidst favorable forward-looking operating environments. And while a combination of profit taking and other factors drove stock prices lower well into the final hour, we believe investors will respond favorably to strong earnings when the market reopens next week.
Meanwhile, domestic oil prices rebounded in the afternoon. Previously, a critical tweet by President Trump that accused OPEC of manipulating oil prices pressured the commodity market. Investors shook off these concerns by the end of the day though, helping to return U.S. crude’s per-barrel value back above its breakeven line. This week was one of the strongest in recent memory for the crude trade, with domestic prices hitting their highest mark in three years.
Looking ahead, Monday opens the busiest reporting period of earnings season. Roughly one-third of S&P 500 companies will release their quarterly data, including a slew of tech titans, which will test market sentiment as the bulls look to drive valuations beyond their recent range. Stay tuned.
– Robert Harrington
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
Before The Bell
It continues to be all about earnings this week, as the nation's largest corporations issue their quarterly reports, with results so far being reasonably positive, on average. That is especially so in the financial services areas, where banks and investment banking concerns remain especially prominent on the list of companies topping forecasts. To be sure, there have been some companies that have disappointed, such as IBM (IBM – Free IBM Stock Report) on Wednesday, and fellow Dow Jones Industrial Average component Procter & Gamble (PG – Free Procter & Gamble Stock Report) yesterday. Overall, though, results have been quite supportive.
Thus, stocks, paying little attention to the flow of solid economic news, namely upbeat reports on retail sales, industrial production, and housing starts, and looking past the steady beat of unsettling domestic and international events, are largely heading higher, with notable gains secured on Monday and Tuesday. Also, Wednesday, which saw the Dow retreat on the poor reception for IBM's results, was generally a constructive day for equities. However, yesterday, on a scant profit increase and slowing sales growth from P&G, the market headed lower at the outset. But American Express (AXP – Free American Express Stock Report), also in the Dow, stormed ahead on strong results.
As the morning wore on, though, the pull of AXP, which was up by more than 6%, enabled the Dow to erase most of its losses for a time, even as the NASDAQ, on weakness in tech, especially in the semiconductor space, continued to track lower. In fact, the tech weakness extended beyond the chip group to take in some other high-flying technology names. Overall, the market was modestly weaker on this penultimate trading session of the week. In other news, the Conference Board reported that the leading economic indicators (LEI) rose 0.3% in March, following gains of 0.8% and 0.7%, respectively, in January and February.
The strength in the LEI suggests further growth in this economy over the balance of the year. Although investors are not looking all that closely at the economy right now, the further upslope in the LEI, even if it was slower, portends well for growth in the months ahead, and by deduction, corporate profits. Thus, the market, after its early dip on profit taking and selective earnings softness, started to recover briefly. By 11:00 AM (EDT), in fact, the losses had been largely erased. And with the economic calendar light for today, the continuing flow of earnings should again be the dominant theme in the stock market to end out the week.
As we moved closer to the noon hour in New York, the market softened anew, but just modestly, as higher yields (the 10-year Treasury note's yield climbed to 2.92%) and rising oil prices (crude lifted above $69 a barrel) has some modest influence on trading. For the most part, though, it continued to be earnings that held sway on the Street this day. The market then would weaken more seriously as we moved further into the afternoon, pushing the Dow to a loss of some 190 points in early afternoon, before some buying again ensued. The NASDAQ and the S&P 500 were weaker, as AXP helped keep the Dow's deficit somewhat contained.
Stocks then continued to wilt as the afternoon moved along, with the weakness in the semiconductors being especially notable. Also, the pressure on Procter & Gamble spread to other consumer discretionary stocks, particularly the food issues and the tobacco equities, some of which fell to 52-week lows. All in all, it was a setback for the earnings bulls, with only a sizable uptick in American Express keeping a more substantial decline from evolving in the Dow. Then, the market started to come back as the session wound down, with the Dow erasing the triple-digit loss that had been in place since early afternoon.
At the close, the blue chip composite was off 83 points; the S&P 500 was lower by more than 15 points; and the NASDAQ was in the loss column by 57 points, with losing stocks ahead of winners by more than two-to-one on the Big Board. As to sectors, there was pronounced weakness in the consumer groups, namely the household products, foods, and tobaccos. Finally, looking out to a new day and after losses in Asia overnight, on reversals in tech, we see that shares are edging higher so far in Europe this morning. Elsewhere, oil is near four-year highs in early New York trading, while Treasury note yields are flat-to-higher. Meantime, U.S. equity futures are suggesting a softer opening when trading resumes later this morning.
– Harvey S. Katz, CFA
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
