Stocks slumped again on Friday amid a batch of disappointing earnings reports from some of the largest companies in the S&P 500, potentially giving credibility to the old Wall Street maxim of “sell in May and go away.”
- The S&P 500 declined 2.79%.
- The Dow Jones Industrial Average lost 2.53%
- The Nasdaq Composite slid 3.2%
- Dow Chemical (NYSE:DOW), a name that hasn’t been mentioned here in a couple of weeks, was the worst performer in its namesake index today after the stock was hit with two analyst downgrades.
Between the reports delivered after-hours Thursday and those arriving before the bell on Friday, earnings updates from marquee companies, including several Dow components, were broadly disappointing, providing a plausible reason for traders to lighten equity allocations heading into the weekend.
Underscoring the risks associated with being involved in the oil patch these days, Exxon Mobil (NYSE:XOM) was one of the Dow’s worst offenders today after reporting a rare quarterly loss. The oil giant lost 14 cents a share in the first three months of the year, but revenue of $56.16 billion beat analysts’ estimate of $51.85 billion.
Unfortunately, Friday’s earnings malaise can’t be pinned on oil names alone, as 29 of 30 Dow stocks were lower in late trading. Congratulations to Walmart (NYSE:WMT) for being the lone winner today.
No Help From Apple
The first earnings report from Apple (NASDAQ:AAPL) incorporating the novel coronavirus time frame didn’t do much to help the stock or broader markets, but there was some good news. For starters, the iPhone maker actually increased its smartphone market share in China during the first quarter — no small feat given the company’s retail stores there were shuttered for weeks due to Covid-19.
Apple boosted its dividend 6.5% and said it’s going to repurchase another $50 billion worth of its stock. In any environment, those tidbits are good news for investors, but these days, those are headline grabbers because so many companies are suspending or scrapping shareholder rewards to conserve cash.
As expected, Apple didn’t offer up anything in the way of 2020 guidance, but that didn’t stop a stampede of analysts from reiterating mostly bullish ratings on the stock, while several boosted price targets on the name.
There are no perfect stocks out there, but among mega-cap names, Apple certainly fits the bill as a quality purchase for the war chest in order to endure this trying market climate.
“V” Isn’t for Victory Today
Earlier this week, there was some enthusiasm for credit card companies, but this group remains beholden to coronavirus vulnerabilities and obviously highly sensitive to the weak global economy. Visa (NYSE:V) proved as much today.
Payment processing is a volume-driven business and with consumer spending slumping, there’s margin pressure to consider when it comes to Visa and its rivals.
“The company provided additional disclosure showing that processed transaction year-over-year growth bottomed out at about 30% in late March-early April and has since rebounded a bit to about a 20% decline,” according to Morningstar. “These figures show the significant impact the business is experiencing.”
Defending the Dividend
Chevron (NYSE:CVX), the second-largest domestic oil company behind Exxon, also reported first-quarter results this morning and while not as bleak as Exxon’s, the company further trimmed spending plans, saying it will spend $14 billion this year. In March, the number was $16 billion.
Chevron CFO Pierre Breber said in an interview with Barron’s that defending the dividend is “our number-one financial priority.” The company previously scrapped a share repurchase program to conserve capital. No comments were made growing the dividend this year.
Bottom Line on the Dow Jones Today
Perhaps mercifully, there are just a couple more weeks left in first-quarter earnings season, but to this point, data confirm the fears investors had entering this round of updates. John Butters of FactSet said in a note out earlier today:
“To date, 55% of the companies in the S&P 500 have reported actual results for Q1 2020. In terms of earnings, the percentage of companies reporting actual EPS above estimates (65%) is below the five-year average. In aggregate, companies are reporting earnings that are 2.5% above the estimates, which is also below the five-year average.”
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.