Today, global stocks, including the major U.S. equity benchmarks, were assisted to the upside on news that the U.K. has finally reached a Brexit agreement. And talks of a trade war between China and the U.S. were not the star attraction on the Dow Jones today.
As has been par for the course in the more than three years since the Brexit was approved, doubts linger about the latest deal’s future, but for today, the headlines provided some upside for riskier assets. For consumers of global headlines, Friday should be a busy day as China reports third-quarter GDP, September industrial production and retail sales.
Overall, we’re halfway through October, which is historically a volatile month for stocks, and the major U.S. equity benchmarks are flirting with record highs and some technical analysts view recent action as encouraging and fostering more upside for equities.
Today, the Nasdaq Composite climbed 0.40% while the S&P 500 added 0.28%. The Dow Jones Industrial Average gained 0.09% with 20 of its 30 components higher in late trading.
Notable Follow Through
On Tuesday, I highlighted an impressive earnings report and guidance from UnitedHealth (NYSE:UNH), a name that has been a Dow offender for much of this year. There was some big-time follow through on that gain today as UnitedHealth jumped 2.7% to pace the Dow.
What I like about today’s price action in UnitedHealth isn’t just the fact that it has the shares up almost 7% this week, but that some of these gains are being accrued following another 2020 Democratic presidential debate.
UnitedHealth’s redemption story still has a few chapters left to be penned (the stock is still down for the year), but perhaps markets are starting to reconcile that Medicare For All isn’t going to happen and that there’s some value to be had with managed care providers.
Bad Big Blue
International Business Machines (NYSE:IBM) was by far the worst offender in the Dow Jones today, sliding 5.54% following its third-quarter earnings report. Beyond Red Hat, there wasn’t much to be excited about in IBM’s report. IBM’s Thursday struggles were meaningful for the Dow because as price weighted index and with trading with a triple-digit price tag, the stock commands a significant percentage of the index. IBM, by some estimates, shave 50 points off the Dow today.
There were some bright spots in the IBM report, but investors don’t need to rush into the name.
“IBM reiterated full-year expectations, initially stated in August, of GAAP EPS being at least $10.58, non-GAAP EPS minimum of $12.80, and free cash flow of about $12 billion,” said Morningstar in a note out today. “We believe IBM is wisely focusing on evolving its business to capitalize on enterprises shifting workloads to cloud-based resources.”
Shares of Netflix (NASDAQ:NFLX) jumped nearly 3% on volume that was almost quadruple the daily average after the company delivered a quarterly report featuring impressive subscriber growth.
Regarding Apple, gains may have been muted today following an analyst report that throws some cold water on the robust iPhone 11 demand thesis.
“It remains unclear to us whether the increased demand from the supply chain is end-demand-driven as our latest carrier survey results continue to indicate demand is largely ‘OK’ and ‘in line’ with expectations, which suggests that pull-ins ahead of the potential increased U.S. tariffs in December are driving higher demand,” said John Vinh of KeyBanc Capital Markets.
Bottom Line on the Dow Jones Today
To this point, earnings have been decent and it might be a stretch to say the “earnings recession” some market observers were calling for several months ago has arrived. It probably hasn’t and it’s likely the third-quarter represents the trough in profit declines with the potential for multiples to expand heading into next year.
“Trade woes and the decline in manufacturing activity both at home and abroad will likely lead to an earnings recession through the end of Q3,” according to State Street. “The implied probability of two more rate cuts by the Fed in 2019 is a coin flip right now, echoing the policy uncertainty given the current situation.”
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.