Earnings have been taking center stage in recent days, but developments in the U.S.-China trade were back in the limelight, helping push stocks higher to start the week.
President Trump said today he sees progress in the trade talks and that strides are being made between the world’s two largest economies. He appears happy that China has lived up to its pledge to buy more from American farmers, though the president said he wants more on that front.
The trade vibes were positive enough today that market observers are speculating the two sides could sign an agreement next month at a meeting in Chile.
“The agreement represents a pause in the 18-month trade war that has hurt the economies of both countries, but falls short of the dramatic overhaul of Chinese economic policy Trump has sought,” according to Bloomberg. “The agreement also doesn’t address Huawei Technologies Co., which has pushed forward with a global effort to sign 5G commercial contracts even as the U.S. seeks to persuade other countries to blacklist the firm.”
While the trade accord may lack some of the meat desired by President Trump, news of progress today was enough to send the Nasdaq Composite higher by 0.91%, while the S&P 500 added 0.69%. The Dow Jones Industrial Average rose 0.21% with nearly two-thirds of its 30 components pointed higher in late trading.
First The Bad News
A couple of names I harped on quite a bit last week were back in focus today and not in a good way. Loyal readers will not be surprised to see Boeing (NYSE:BA) mentioned in this conversation. The largest member of the price-weighted Dow slumped another 3.7% today and it was the worst-performing member of the blue chip index again.
Headline risk is mounted in shares of Boeing over the weekend after the company provided emails to a House subcommittee that could indicate the company knew about problems with the software on the now grounded 737 MAX jet as far back as 2017.
“It is unfortunate that this document, which was provided early this year to government investigators, could not be released in a manner that would have allowed for meaningful explanation,” according to a statement from Boeing.
Barron’s may have said it best, noting analysts and investors are starting to lose faith in Boeing. Down more than 8% over the past week and 10.52% this month, Boeing shares reflect that sentiment.
International Business Machines (NYSE:IBM) was a Dow offender again today, shedding 1.1%. The stock slipped last week on the back of another disappointing earnings report, but it appears like analysts aren’t done knocking IBM.
UBS analyst Munjal Shah downgraded IBM today to “neutral” from “buy,” while paring his price target on the stock to $140 from $170.
“New mainframe and Red Hat acquisition would drive revenue growth next year,” said Shah in a note to clients. “However, beyond 2020, Red Hat contribution to growth lessens and mainframe compares are difficult.”
Better News
On light news, shares of JPMorgan Chase (NYSE:JPM) surged 2.4% to lead the Dow Jones winners today. The gain accounts for more than half of the stock’s rally over the past week and cements JPM’s status as one of this year’s best-performing large- or mega-cap financial services stocks. American Express (NYSE:AXP) rallied in sympathy with JPM, gaining 1.9% to rank as the second-best Dow performer today.
Ahead of its fiscal fourth-quarter earnings reveal on Oct. 30, Apple (NASDAQ:AAPL) ascended to another record high today after Raymond James analyst Chris Caso reiterated an “outperform” rating on the stock while elevating his Apple price target to $280 from $250.
“We increasingly view the 5G opportunity as a two-year cycle, with 5G representing an estimated 40% of mix in the fall 2020 cycle, growing to the vast majority in the 2021 cycle,” said Caso in a note to clients.
Bottom Line on the Dow Jones Today
As noted above, there appears to be progress on the trade front and, as mentioned last week, there is still a very strong chance that the Federal Reserve will lower interest rates again this month. So let’s focus on earnings again because the next couple of weeks bring an absolute avalanche of reports from bellwether members of the major U.S. equity indexes, including the Dow Jones Industrial Average.
“The blended net profit margin for the S&P 500 for Q3 2019 is 11.3%,” according to FactSet data. “If 11.3% is the actual net profit margin for the quarter, it will mark the first time the index has reported three straight quarters of year-over-year declines in net profit margin since Q1 2009 through Q3 2009. Nine of the 11 sectors are reporting a year-over-year decline in their net profit margins in Q3 2019, led by the Energy (5.4% vs. 8.1%) and Information Technology (20.6% vs. 23.0%) sectors.”
As of this writing, Todd Shriber did not hold a position in any of the aforementioned securities.
