Dow Stocks - Market Rallies Slightly On Dow Earnings
On Wednesday, three Dow firms reported earnings that sent their stocks up. That lifted the Dow by 0.7% and even helped the S&P 500 gain 0.22%. Nasdaq was up 8 basis points and the Russell 2000 was down 0.22%.
The minor rally and the 6.15% decline in the VIX boosted the CNN fear and greed index to 55 out of 100 which is neutral. One month ago, as stocks bottomed, the index was at 2.
The stock market has been on a tear since then. Only 2 sectors fell on Wednesday. Energy was down 1% and materials were down 0.65%. Two best sectors were utilities and consumer staples which rose 1.08% and 1.17%. Consumer staples were boosted by P&G stock which increased 4.88%.
Dow Stocks - 3 Winners
3 Dow firms which rallied because of earnings were P&G, United Technologies, and IBM.
Proctor and Gamble reported $1.25 in EPS which beat estimates by 4 cents. Revenues were $17.44 billion which beat estimates for $17.15 billion. Organic sales were up 4%. 1% of that growth came from price increases. The stock rose because fiscal 2019 guidance for sales growth was 2%-4%; it was 2%-3% prior to this report. Beauty care sales were up 8% and healthcare sales growth was 5%.
The grooming business, which includes Gillette, had a 3% drop in sales. Fabric and home care organic sales growth was 6%. The guidance raise probably doesn’t justify the stock price increase Wednesday. However, the stock was only up 3.53% (not including the Wednesday rally) since the Christmas Eve low, so it had been dramatically under-performing.
I think these 3 firms garner too much attention because they are part of the Dow.
Dow Stocks - Just because 3 Dow firms all beat estimates in one day doesn’t mean this has been a great earnings season.
To be clear, as of Wednesday evening, 87 S&P 500 firms had reported earnings. 74% beat EPS estimates on 18.1% growth. 62% beat sales estimates on 6.5% growth.
That being said, the one firm out of the 3 which matters the most to determining the strength of the economy is United Technologies. Its shares were up 5.27% as it reported EPS of $1.95 which beat estimates of $1.51.
Revenue growth was expected to be 7%, but it came in at 15%. Its jet engine division, Pratt & Whitney, had sales growth of 11%. Collins Aerospace Systems had growth of 8% and Otis elevator orders were flat. Carrier air conditions had 3% sales growth.
This firm also had strong 2019 guidance as EPS is expected to be from $7.7 to $8 (expectations were for $7.75) and sales are expected to be from $75.5 billion to $77 billion (estimates were for $76.66 billion).
Dow Stocks - IBM stock was up the most probably because its expectations were the lowest.
IBM is a left for dead tech stock which is maligned for its poor track record of buybacks and acquisitions. It still has a market cap of $120 billion, which means it still matters.
The stock was up 8.46% as it had its best day in 10 years. EPS were $4.87 which beat estimates by 5 cents. Revenues were $21.76 billion which beat estimates by $50 million. Revenues were down 3% year over year. That shows how low expectations were.
Its purchase of RedHat for $34 billion which will close in Q2 2019 could reinvigorate revenue growth. The global business services division and the systems group had revenues of $4.3 billion and $2.6 billion which beat estimates for $4.15 billion and $2.6 billion. Global financing revenues of $402 million missed estimates for $426 million.
Dow Stocks - 34 Day Shutdown
The government has been shutdown for 34 days which is 13 days longer than the longest one prior to this. It’s almost a given that government workers will miss their 2nd paycheck on Friday.
These workers are starting to wonder if they should find a new job in the private sector. We know this because federal employees’ job searches are now 82% above normal levels. It makes sense to search for a new job because the labor market is very strong and their 2nd paycheck is about to be missed.
These workers likely won’t quit, but they can find side gigs to help them make ends meet. You should have a few months of savings to make do if you lose your job. However, not everyone is in this ideal situation.
Both sides in the government shutdown keep further entrenching themselves.
Nancy Pelosi canceled the State of the Union speech until the government shutdown ends. The speech would have been on January 29th.
President Trump was originally going to give speech at a new location, but then he decided to wait until the government is re-opened. The fact that the speech for next Tuesday is already being postponed suggests this shutdown will last least another week.
Dow Stocks - Each time government workers don’t get paid, the economy takes a hit.
This shutdown is delaying new government economic reports every week. That’s why earnings season is more important than ever. It will be interesting to see how stocks react to the old data after the shutdown ends.
Maybe they won’t react that much to data from November because it’s already far in the rear-view mirror.
Boeing pleaded to the government to end the shutdown. Even though the shutdown doesn’t affect the Pentagon, it affects the aviation industry.
Boeing stated, “we are concerned about the short term effects on our friends, families and neighbors in the communities we operate in as well as the long term effects that may begin to weigh on our operational efficiency, pose other challenges for our business and the aviation sector in general.”
Dow Stocks - Conclusion
S&P 500 earnings estimates have been falling off a cliff. 3 Dow firms reporting great results doesn’t change this.
The government shutdown has delayed economic reports in November and December. I think this lack of information effects stocks more than the negative impact to GDP.
We all know the economic impact will be transitory, but we don’t know how the economy is doing because of the missing reports.