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Dow Jones Today: Averting Catastrophe, but Nothing to Brag About

Stocks appear to be in a holding pattern as Fed Chair Powells prepares to speak over the next two days

If not for some bullish tidings in the technology sector, the largest sector weight in the S&P 500, today’s losses likely would have been more substantial. As it was, the Nasdaq Composite, which closed higher by 0.54% was the only one of the major U.S. benchmarks to close higher today.

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The S&P 500 added 0.12%, averting a third consecutive day of declines while the Dow Jones Industrial Average lost 0.08%. Overall, these were not bad losses by any stretch. But the recent scuffling by stocks indicates there is some level of importance around Federal Reserve Chairman Jerome Powell’s congressional testimony, which kicks off tomorrow.

“Focus this week will be on Fed chief Jerome Powell’s remarks at his two-day testimony before the Congress, starting Wednesday,” reports Reuters. “Also due on Wednesday is the central bank’s June policy meeting minutes.”

As has been noted in this space, market participants are pricing in the following Fed facts: no interest rate cut this month and no cuts totaling 50 basis points this year. Hope burns eternal for a rate reduction of 25 basis points, but Powell’s two-day testimony and the June meeting minutes could indicate otherwise.

In late trading, just 12 of the Dow’s 30 components were in the green and none of that dozen had gains in excess of 1%. Tuesday’s big winner was Merck (NYSE:MRK), which added 0.98% after the Food & Drug Administration (FDA) “accepted for review six supplemental Biologics License Applications (sBLAs) to update the dosing frequency for KEYTRUDA, Merck’s anti-PD-1 therapy, to include an every-six-weeks (Q6W) dosing schedule option,” according to a statement.

The company is seeking “KEYTRUDA indications in melanoma, classical Hodgkin lymphoma, primary mediastinal large B-cell lymphoma, gastric cancer, hepatocellular carcinoma and Merkel cell carcinoma,” it said in the release.

One More Ray of Sunshine

Again, Dow winners were hard to come by Tuesday, but Cisco Systems (NASDAQ:CSCO) traded modestly higher after the company said it will acquire optical semiconductor maker Acacia Communications (NASDAQ:ACIA) for $2.6 billion in cash.

Acacia’s products “are designed to transform communications networks through improvements in performance, capacity and cost,” according to Cisco.

Cisco has one of the tidier balance sheets and one of the larger cash hoards in the technology sector, so it can easily absorb an acquisition of this size.

Troublemakers on Dow Jones Today

3M (NYSE:MMM), already one of the Dow’s worst-performing components this year with a double-digit loss, was one of the index’s worst offenders Tuesday, sinking 1.99% following an analyst downgrade. RBC Capital Markets cut its rating on 3M to “market perform” from “outperform” while slashing its price target on the industrial conglomerate to $176 from $207.

Verizon (NYSE:VZ), which was one of the Dow’s worst performers yesterday, continued that ominous trend today, shedding 1.52%. The stock’s year-to-date gain has all but withered while shares of primary rival AT&T (NYSE:T) are higher by almost 18%.

Bottom Line: Fed Help and Earnings

Powell’s aforementioned testimony could bring some near-term relief for stocks, particularly if a valid takeaway is that rate cuts are still on the table following the strong June jobs number. There are also some glimmers of hope, be they faint, on the earnings front.

“During the second quarter, analysts lowered earnings estimates for companies in the S&P 500 for the quarter. The Q2 bottom-up EPS estimate (which is an aggregation of the median EPS estimates of all the companies in the index for the second quarter) dropped by 2.6% (to $40.42 from $41.46) during this period,” according to FactSet.

As the research firm points out, “the average decline in the bottom-up EPS estimate during a quarter has been 3.3%.”

Todd Shriber does not own any of the aforementioned securities.

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