Domestic equities continued grinding higher even as the new coronavirus outbreak worsens. Recent data indicate the number of confirmed cases is approaching 25,000 with nearly 500 deaths on a global basis, but stocks are shrugging off those headlines as the S&P 500 approaches a three-day gain of about 3%.
- The S&P 500 gained 1.13%.
- The Dow Jones Industrial Average rose 1.68%.
- The Nasdaq Composite added 0.43%.
- International Business Machines (NYSE:IBM) was among several Dow Jones stocks sporting gains of 4% or more in late trading.
Obviously, the coronavirus continues commanding significant attention, but recent price action suggests U.S. markets are optimistic a resolution to the situation will soon be reached or that domestic equities are relatively immune to the scenario. It’s probably more the latter than the former.
In economic news, the ADP private payroll survey indicates 291,000 non-government jobs were created last month. This is important because the Labor Department releases the January jobs report Friday morning. Economists are expecting the addition of 162,000 jobs for January, up from the initial December reading of 145,000.
Overall, today’s news flow was good enough to have two-thirds of the Dow’s 30 members in the green late in Wednesday’s session.
Post-Earnings Disappointments
Before getting into the good news, let’s examine some Wednesday woes courtesy of post-earnings reaction from Merck (NYSE:MRK) and Disney (NYSE:DIS), two of the worst performers in the Dow today.
Pharmaceuticals giant Merck slipped after reporting fourth-quarter earnings of $1.16 per share on sales of $11.9 billion. Analysts expected earnings of $1.15 a share on revenue of $11.7 billion. The company said it’s spinning off three slower growing divisions of the company, a move similar to one announced by rival Pfizer (NYSE:PFE) and one that is generating a similarly tepid reaction among investors.
As for Disney, the company reported adjusted EPS of $1.53 on revenue of $20.86 billion, beating Wall Street estimates calling for earnings of $1.44 on turnover of $20.79 billion. The new Disney + streaming service finished the quarter with 26.5 million subscribers and added another 2.1 million last month.
While there are some coronavirus concerns due to the closures of Disney parks in Hong Kong and Shanghai, studio revenue was excellent and today’s Disney dip could be a buying opportunity.
“Studio revenue was up over 100% due to another strong theatrical quarter that included Frozen 2 and Star Wars IX,” according to Morningstar. “Revenue at the DTC segment hit $4 billion due to the launch of Disney+. Segment operating margin fell to 19.2% from 23.9% as revenue growth was more than offset by the ongoing DTC investments and increased marketing and programming costs.”
3 for 4
In late trading, three Dow stocks were up by at least 4% and that trio is surprising. As noted earlier, IBM was vying for top honors in the blue-chip index on what appears to be nothing more than extended enthusiasm for news out last week that Arvind Krishna is taking over as chief executive officer in April.
Another surprise is UnitedHealth Group (NYSE:UNH). I say surprise because Medicare For All champion Sen. Bernie Sanders appears poised to finish second in the Iowa Democratic Caucus. Those results aren’t firm yet, but it’s clear Sanders is unlikely to finish any worse than second and that gives him momentum. How long UNH can rise in unison with Sanders’ poll numbers remains to be seen, but investors will certainly take today’s 5% pop.
Add Exxon Mobil (NYSE:XOM) to the list of today’s Dow surprises. This one comes with a cautionary tale because it very well could be case of a “dead cat bounce.” After all, Exxon hit a 10-year low this week and the name is two days removed from Goldman Sachs downgrading it to “sell,” while questioning the company’s free cash flow generating capabilities.
Bottom Line on the Dow Jones Today
An encouraging element of the Dow’s Wednesday rally was that it wasn’t powered by the usual suspects, meaning Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). In fact, at this writing, Apple was the “worst” of the Dow winners, while Microsoft was sporting a modest loss.
On a related note, give the Nasdaq Composite some credit for finishing in the green today because previously hot Tesla (NASDAQ:TSLA) was under siege, trading down by as much as 20% earlier today.
As of this writing, Todd Shriber did not own any of the aforementioned securities.
