Albeit in modest fashion, stocks gained Thursday amid heightened expectations the Federal Reserve could proceed with lowering interest rates this month, sending the Dow Jones Industrial Average above 27,000 for the first time.
While it appears unlikely that the Fed will lower rates by 50 basis points this month, markets are increasingly comfortable with the notion of 0.25% reduction followed by more of the same in September.
The Nasdaq Composite was today’s offender among the major U.S. indexes, sliding 0.08% while the S&P 500 gained 0.23%. The Dow added 0.85%.
Gains for the Dow and S&P 500, in particular, could have been better if not for weakness in the healthcare sector, the second-largest sector weight in the S&P 500. In late trading, all three of the Dow’s pharmaceutical names were lower with Merck & Co. (NYSE:MRK) being the index’s worst loser with a loss of 4.5%. Politics were at play.
“The Trump administration is backing down from a controversial effort to lower drug prices, only days after its first major industry reform was overturned by a federal judge,” reports CNN.
Likewise, Sen. Kirsten Gillibrand (D-NY) is looking to jump-start her scuffling 2020 presidential campaign by unveiling ideas for lower drug prices. In other words, pharmaceuticals stocks were hit by both political parties today.
Now, onto some Dow winners.
Speaking Of Healthcare…
It was not all bad news for Dow healthcare names today. Just look at UnitedHealth (NYSE:UNH), which surged 5.53%. The managed care giant, often highlighted in this space, has been finding its groove in recent weeks and stands to benefit from lower drug prices.
Keeping with the theme of selling pharmaceuticals, shares of Walgreens Boots Alliance (NASDAQ:WBA) slipped 0.01% after the company said it will raise its quarterly dividend by 4% at 45.75 cents a share, marking the 44th consecutive year the company has boosted its payout.
A Bullish Note
Shares of Microsoft (NASDAQ:MSFT) nudged up 0.4% after Cowen initiated coverage of the stock with an “outperform” rating and a price target of $150. The stock is up 37% year-to-date and 19 of 20 analysts have the equivalent of “strong buy” ratings on it.
A Fine Financial
Goldman Sachs Group (NYSEARCA:GS) jumped 2.61% on above average volume on news that the Wall Street behemoth is looking to extend its reach in the world of digital assets. As was noted here yesterday, a slew of financial services stocks report earnings next week, and Goldman is one of the bellwethers of that group, so today’s buying in the name could also be a sign traders are expecting the stock to rally into earnings.
Bottom Line: Let’s Talk About Earnings
We have been highlighting potential areas for concern related to earnings season. With the calendar about to bring a spate of reports, investors should brace for some disappointments.
“Because of uncertainty around trade wars and global growth, a bulk of U.S. companies are lowering the bar for their second-quarter earnings. Of the 114 companies that have issued earnings guidance for the period, 77% have issued negative forecasts, according to data from FactSet,” reports CNBC.
If there is a silver lining, it is that many of these dour expectations may already be baked into stocks.
Todd Shriber does not own any of the aforementioned securities.
