Blue-Chip Earnings Keep Shouldering Markets Higher

Stocks moved higher on Tuesday thanks mainly to the post-earnings gains in two Dow Jones components. Caterpillar Inc. (NYSE:CAT) added 5%, as pricing gains drove its margin and earnings upside. And the 3M Co (NYSE:MMM) added 5.9% after revenues, earnings-per-share and operating income all beat estimates, as management raised forward guidance.

Several Oddities Persist as Stocks Surge on Blue-Chip Earnings

Between them, the two stocks were responsible for 150 of the Dow Jones Industrial Average’s 170-point gain.

In the end, the Dow Jones gained 0.7%, the S&P 500 gained 0.2%, the Nasdaq Composite gained 0.2% and the Russell 2000 gained 0.2%. Treasury bonds weakened, the dollar was mixed, gold lost 0.2% and oil added 1.1%.

Breadth was positive, with advancers outpacing decliners by a 1.2-to-1 ratio on in-line volume, with NYSE activity at 103% of its 30-day average. Financials led with a 0.7% gain, while healthcare was the laggard, down 0.7%.

ATV maker Polaris Industries Inc. (NYSE:PII) gained 15.2% after reporting a quarterly revenue and earnings beat on strong organic growth and reduced dealer inventory. General Motors Company (NYSE:GM) added 3% after earnings beat estimates by 19% on revenues, 4% ahead of estimates. On the downside, Whirlpool Corporation (NYSE:WHR) fell 10.5% after earnings missed estimates on what the company blamed on higher commodity costs and forward guidance, which was lowered 7%.

AT&T Inc. (NYSE:T) fell nearly 2% after the close after reporting weaker-than-expected earnings of 74-cents-per-share (missing by a penny), as revenues were pressured by ongoing competition against pay-TV services. Chipotle Mexican Grill, Inc. (NYSE:CMG) was crushed more than 9% after reporting earnings of 69 cents (inclusive of data breach costs) vs. the $1.56 expected.

Finally, chipmaker Advanced Micro Devices, Inc. (NASDAQ:AMD) fell more than 10% after reporting solid earnings as forward guidance disappointed.

On the economic front, President Trump met with GOP Senators to discuss the path forward for tax reform. Expectations are for the release of draft legislation from Congress next week. Focus remains on the ability to balance the cost of the tax cuts with a desire to protect things like the 401k and state and local tax deductions.

Bottom Line on the Dow Jones’ Melt-up

The Dow’s melt-up — amid extended sentiment, narrow breadth and extreme positioning — is resulting in a growing list of oddities.

Like the way the Dow’s total return is outpacing the S&P 500’s total return by more than 4% for the year-to-date; performance that it hasn’t seen since 2008. Or the way the CBOE Volatility Index (VIX) actually pushed higher, suggesting investors are feeling nervous about this near-vertical rally. Or the way the “FANG” big-cap tech stocks are struggling, posting their longest losing streak since the election.

Long-term Treasury bonds are weakening as well, pushing up long-term interest rates, on reports Trump asked Senators who he should pick for the Federal Reserve chairmanship, with the winning vote going to hawkish Stanford economist John B. Taylor. That lifted the 10-year Treasury yield above 2.4%, pushing it to levels not seen since March and potentially ending an eight-month consolidation.

Keep an eye on the weakness in Treasury bonds, which could pull stocks down in sympathy on “risk parity” worries.

Check out Serge Berger’s Trade of the Day for Oct. 25.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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Anthony Mirhaydari is founder of the Edge (ETFs) and Edge Pro (Options) investment advisory newsletters. Free two- and four-week trial offers have been extended to InvestorPlace readers.

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