Dow Jones Today: Coronavirus, Caucus Uncertainties and Stocks Don’t Care

With a surprise boost from Caterpillar, stocks fought off some challenges to rally Tuesday

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There was plenty of uncertainty to go around today. The coronavirus appears to be getting worse, not better. It’s so bad in fact that Macau, the world’s largest gambling hub, is closing casinos for two weeks. Here in the U.S., the Iowa Democratic Caucus was hindered by glitches galore and the result still isn’t known as of this writing. Markets typically don’t like that level of uncertainty, but they bucked that trend today.

Dow Jones Today: Coronavirus, Caucus Uncertainties and Stocks Don't Care
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  • The S&P 500 advanced surged 1.50%.
  • The Dow Jones Industrial Average jumped 1.44%.
  • The Nasdaq Composite rallied higher by 2.10%.
  • File this under a rarity for this space, but in late trading, Caterpillar (NYSE:CAT) was tussling with some other names for top honors in the Dow.

Adding to the significance of the U.S. rally today is this interesting factoid: the Nasdaq-100 Index raced to another all-time high despite a roughly 3% post-earnings slide by Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), one of the index’s marquee components.

Obviously, we’re discussing U.S. stocks here, but one catalyst for the good fortune to start the week is China being proactive to prop up their markets in the face of the coronavirus epidemic. No, Monday wasn’t pleasant for Chinese stocks, but the central bank there has injected almost $243 billion into markets and it’s reasonable to expect an interest rate cut beckons.

In late trading, 28 of 30 Dow stocks were higher, one of the best ratios seen in weeks.

Caterpillar Call

On light news, Caterpillar jumped 3.22%. As noted here, the industrial machinery appears poised to raise its dividend again early this year, potentially allaying concerns about cash flow. Following the company’s recent fourth-quarter earnings, which was at best a mixed bag, some analysts remain cautious on the name.

“We believe conservatism is spreading throughout the heavy equipment industry as customers are taking a wait-and-see approach with their capital expenditure investments as uncertainty persists in many geographies,” said Morningstar in a fresh research note. “We believe such a pullback in sales might impede Caterpillar’s planned expansion of its aftermarket revenue, and we are reducing our fair value estimate to $156 from $166.”

Pleasant Surprise

Visa (NYSE:V) was toward the bottom end of the Dow winners today, but highlights just how strong the index was Tuesday and it’s not an indictment of Visa stock, which gained more than 1%.

It can be argued that Visa’s strength was a pleasant surprise because it’s expected that the company will soon unveil significant alterations to its interchange fee program. Some businesses will pay less when they swipe customers’ Visa cards, but online retailers are likely to pay more. That could mean more revenue for Visa due to the growth of e-commerce.

This Is Getting Concerning

Exxon Mobil (NYSE:XOM) was the worst-performing name in the Dow today, shedding about 1%. That on a day when oil prices rallied and rival Chevron (NYSE:CVX) was among the Dow winners.

Today’s slide takes Exxon deeper into 10-year low territory and there’s an article by Barron’s raising concerns about the company’s ability to generate enough cash flow to cover its previously sacred dividend. Even if the payout can be sustained, the company would deal a blow to investors by not raising, even modestly.

Pre-Earnings Rally

Disney (NYSE:DIS) reports earnings after the bell today with Wall Street expecting earnings of $1.46 a share on revenue of $20.783 billion. Under normal circumstances, an update on Disney + would be the issue investors would focus on, but since the company has a theme park in Shanghai, CEO Bog Iger and team will likely need to make some commentary on how the coronavirus is affecting the company.

Bottom Line on the Dow Jones Today

Something interesting that stood out today was the strength in Dow healthcare stocks. Yes, even UnitedHealth Group (NYSE:UNH).

I don’t possess a crystal ball, but I suspect the release of the Iowa caucus results coupled with a State of the Union address tonight in which drug prices will almost certainly be mentioned could present some near-term headwinds for the sector. On a related note, Dow component Merck (NYSE:MRK) reports fourth-quarter results before the bell tomorrow.

As of this writing, Todd Shriber did not own any of the aforementioned securities.

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