Stocks climbed higher on Tuesday in quiet trading as investors focused on the flood of third-quarter earnings and some soft inflation data.
In the end, the Dow Jones Industrial Average gained 0.4%, the S&P 500 Index wafted up 0.6%, the Nasdaq Composite gained 0.9% and the Russell 2000 finished the day 0.6% higher. Treasury bonds were stronger, the dollar rose, gold gained 0.5% and crude oil added 0.7% in quiet trading to climb back over the $50-a-barrel threshold.
As shown in the chart below, the Dow remains below the support line of its broken three-month pennant pattern — suggesting the medium-term downtrend remains the dominant force.
Healthcare stocks rallied 1.1%, while telecoms were the laggards, up just 0.2%. Netflix, Inc. (NASDAQ:NFLX) soared 19% thanks to solid earnings and revenue and impressive subscriber additions. Free cash flow burn is a problem, but investors largely shrugged it off to celebrate the impressive growth metrics. Domino’s Pizza, Inc. (NYSE:DPZ) gained 4.9% on a top- and bottom-line beat on increased volume. International Business Machines Corp. (NYSE:IBM) fell 2.6% as the company’s long streak of revenue declines continued.
After the close, the earnings rollout continued with Big Tech in focus.
Intel Corporation (NASDAQ:INTC) reported a top- and bottom-line beat with earnings of 80 cents per share (vs. 73 cents expected) on $15.8 billion in revenue (vs. $15.6 billion expected). Shares were down 4.1% in extended trading on a drop in gross margin on a quarter-over-quarter basis.
Yahoo! Inc. (NASDAQ:YHOO) jumped slightly in after-hours trading thanks to better-than-expected earnings of 20 cents per share vs. the 14 cents expected. Revenue was soft, however, at $857 million vs. $861 million expected.
On the economic front, the consumer price index in September increased 0.3%, in line with expectations. On an annual basis, the index rose 1.5%, below the Fed’s 2% target. Gasoline accounted for more than half the increase, as year-over-year energy price comparisons are about to get easier — raising the specter of a surge of inflation into the end of the year and into early 2017. Housing cost inflation was also a factor.
Overall, the technical outlook remains unchanged: Breadth continues to weaken, the Q3 earnings season is set to be the fifth consecutive quarter of falling profits, we’re in the midst of a buyback blackout period, and major events (such as the Fed’s possible December rate hike and the November election) lie ahead.
Remain cautious.
Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.
