Stocks Close Mixed as Earnings Fail to Impress
The first-quarter earnings season is the Rodney Dangerfield of finance. It gets no respect.
Despite a new batch of blockbuster earnings results, stocks wobbled and closed mixed today. Stocks are priced for perfection; anything less than perfect gets punished. All three main indices bounced around throughout the trading session.
Weighing on the Dow Jones Industrial Average was exploration and production giant Exxon Mobil (NYSE: XOM), an index component that reported disappointing earnings. The 10-year Treasury bond’s yield continued its retreat today below the 3% level, but investors remain skittish over rising bond yields.
And yet, technology industry bellwethers such as Facebook (NSDQ: FB) have posted blowout operating results this week. We’ve also gotten solid first-quarter operating results from other sectors across the board, notably financial services and consumer staples.
Stocks at the opening bell today raced firmly into the green, buoyant over tech earnings. But by early afternoon equities ran out of steam and struggled for direction.
Weak economic data was a culprit. Signs of an economic slowdown offset stellar earnings. The U.S. Commerce Department reported today that the U.S. expanded at a 2.3% annual pace during the first three months of 2018, slower than the previous three quarters. The economy grew at a 2.9% pace in the fourth quarter.
Growth in consumer spending slowed to a 1.1% rate in the first quarter, the slowest pace since the second quarter of 2013. The fourth quarter racked up a strong growth rate of 4.0%. The slowdown in economic growth is likely temporary, though, as massive tax cuts kick in.
In a separate report Friday, the Labor Department said wages and salaries spiked 0.9% in the first quarter, marking the largest increase since the first quarter of 2007. The increase followed a 0.5% rise in the fourth quarter. Wages and salaries were up 2.7% in the 12 months through March compared to 2.5% in the year to December. These new signs of accelerating inflation added to Wall Street’s edginess.
Much of the blame for the Dow’s drop today belongs to Exxon Mobil’s underwhelming earnings report card. A Dow component, Exxon Mobil reported EPS of $1.09, compared to expectations of $1.12 for the first quarter. Slumping demand in the company’s fuel refining and chemicals segments paved the way for the earnings miss. XOM shares fell today by 3.82%.
Tech firms deliver…
Nonetheless, the technology sector has delivered a big package of positive earnings surprises. The following trio of mega-cap leaders released impressive operating results after the closing bell on Thursday.
Amazon (NSDQ: AMZN) posted revenue of $51.04 billion vs. $49.78 billion as estimated. EPS came in at $3.27 vs. the expected $1.26.
Amazon Web Services (AWS), the subsidiary that provides on-demand cloud computing platforms, generated revenue of $5.44 billion vs. the forecasted $5.25 billion.
Amazon’s revenue, which now includes sales from Whole Foods, increased 43% in the first quarter, compared to the same quarter a year ago. The company’s North America revenue jumped 46% to $30.7 billion and international sales grew 34% to $14.8 billion. Amazon shares today rose 3.60%.
Intel (NSDQ: INTC) posted EPS of 87 cents vs. the forecasted 72 cents. Revenue came in at $16.07 billion vs. $15.08 billion. The chipmaker’s total revenue for the quarter was up 9% year-over-year, with earnings up 32% since the first quarter of 2017.
Intel has successfully responded to a changing marketplace by accelerating its research and development into new growth areas, such as faster chips to power mobile phones and virtual reality devices. Intel shares today fell 0.60%.
Microsoft (NSDQ: MSFT) reported EPS of 95 cents vs. 85 cents as expected by analysts. Revenue came in at $26.82 billion vs. $25.77 billion as expected.
Management issued guidance of $28.8 billion-$29.5 billion in revenue for the fiscal fourth quarter. Analysts had expected the company to forecast $28.01 billion in revenue for that quarter.
The big takeaway is Microsoft’s spectacular growth in cloud revenue. Azure first-quarter revenue soared 93% and Dynamics 365 Software-as-a-Service (SaaS) revenue jumped 65%. Both segments posted better-than expected growth. Significantly, the size of Microsoft’s cloud business now exceeds that of Amazon’s. Microsoft shares today rose 1.65%.
On a bright note, geopolitical risk appears to be diminishing, after a ground-breaking summit of North and South Korean leaders this week.
North Korea’s Kim Jong Un and South Korean president Moon Jae-in continued their “love fest” today, in efforts to ease tensions over Pyongyang’s nuclear weapons program. The meeting fueled hopes of a lasting peace on the Korean peninsula.
However, in a pattern that we’ve seen repeated over and over again this year, even this good news got no respect from investors. None at all, I tell ya.
Friday Market Wrap
- DJIA: -0.05% or -11.15 points to close at 24,311.19
- S&P 500: +0.11% or +2.97 points to close at 2,669.91
- Nasdaq: +0.02% or +1.12 points to close at 7,119.80
Friday’s Big Gainers
- Enova International (NYSE: ENVA) +27.21%
Financial tech firm posts strong earnings.
- DMC Global (NSDQ: BOOM) +24.33%
Diversified tech firm beats on earnings.
- Celyad (NSDQ: CYAD) +19.66%
Key drug performs well in trial.
Friday’s Big Decliners
- World Fuel Services (NYSE: INT) -21.21%
Energy logistics firm disappoints on earnings.
- FormFactor (NSDQ: FORM) -16.00%
Analysts bearish on electrical testing firm.
- Charter Communications (NSDQ: CHTR) -11.68%
Telecom sheds subscribers, announces layoffs.
Letters to the Editor
“Are we currently in a dip that represents a buying opportunity? Or should we hold off until later?” — John S.
I don’t think the correction is over yet. Several risks loom over Wall Street, including a brewing trade war, stirring inflation, rising interest rates, political dysfunction in Washington, DC, and geopolitical tensions.
Keep ample cash reserves on hand. This market remains volatile and investors are likely to get jolted again. As we’ve seen this year, it only takes a whiff of bad news to send Wall Street reeling. That said, I also believe you can use these dips to begin accumulating quality value stocks at good prices.
Worried about another sharp decline in stocks? Send me your questions: firstname.lastname@example.org
John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.