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Stocks rally on earnings a day after ending at 5-month lows

Oct 31 2018 07:10
Marley Jay, AP

US stocks climbed on Tuesday on another volatile day of trading as solid earnings reports from several big companies buoyed investors.

Many of the best-performing stocks came from parts of the market that have fared the worst during the market's October plunge. Those included smaller and more US-focused companies, internet and media companies, basic materials makers and energy companies.

The benchmark S&P 500 index jumped 41.38 points, or 1.6%, to 2 682.63, a day after closing at a five-month low. But the index is still 8.5% below the all-time high it set on September 20. Stocks have had a few solid gains in this stretch but failed to maintain the momentum.

The earnings season that began in mid-October has been a mixed bag for investors and has contributed to the wild swings in trading. On Tuesday, Oreo maker Mondelez and athletic apparel maker Under Armour both jumped following strong third-quarter reports.

Corporate earnings are up about 20% this year, boosted by the strong US economy and lower corporate taxes. Analysts expect company profits to keep growing in 2019, but at a slower pace. The stock market tends to track company profits, so the projected slowdown in growth has contributed to investors' anxiety. There is also concern that the economy will slow from the hot pace of the last two quarters, when it grew 4.2% and 3.5%, respectively.

Julian Emanuel, chief equity and derivative strategist for BTIG, said investors are worried about two things that could slow the economy: the US-China trade dispute, and the Federal Reserve raising interest rates.

"All of this fear about growth is being traded on something we don't see in the statistics right now," he said. "You factually don't have signs of an economic slowdown yet."

The S&P 500 is on track for its worst monthly performance since the current bull market started in March 2009. On Monday the benchmark index closed at its lowest level since early May following a report that the Trump administration could announce more tariffs on imports from China in December.

The Dow Jones Industrial Average gained 431.72 points, or 1.8%, to 24 874.64. The Nasdaq composite advanced 111.36 points, or 1.6%, to 7 161.65. The Russell 2000 index of smaller-company stocks rose 29.33 points, or 2%, to 1 506.64.

Trading remained uneven: the S&P 500 fell at the start of trading and then turned sharply higher. In the afternoon the index gave up all of its gains and briefly turned lower, but recovered to finish near its highest levels of the day.

Mondelez, which makes Cadbury chocolates and Trident gum in addition to Oreos, rose by the most in a year after its quarterly profit surpassed analysts' projections. Its stock gained 5% to $42.12. Other household goods makers also did well. Walmart rose 2.6% to $102.42.

Among media companies, video game maker Take-Two Interactive soared 11% to $124.01 after it said its game "Red Dead Redemption 2" brought in $725m in retail sales over its first three days. Take-Two shares are sharply lower this month as media, internet and technology companies have taken a beating.

Some of the worst losses during the market's current downturn were sustained by longtime investor favorites that had soared in recent months. Amazon and Netflix have both plunged 24% in October, but those companies had more to lose than many others did: Amazon is still up 31% this year, and Netflix has climbed 49%.

Elsewhere among internet and media companies, Comcast jumped 4.8% and Facebook rose 2.9% to $146.22. The social media company rose another 1.4% in aftermarket trading after its third-quarter profit was larger than analysts expected.

Among technology companies, chipmaker Intel rose 5.2% to $47.76.

While those stocks have slumped lately, the S&P 500's index of utilities and household goods makers have each climbed 3% this month. The broader S&P 500 has tumbled 7.9% over the same time.

General Electric cut its dividend again. The company halved its dividend to 12 cents from 24 cents in December, and cut it to 1 cent Tuesday. The struggling industrial giant also said the Justice Department has opened a criminal investigation into a $22bn charge it booked to its power business this year. Securities regulators were also conducting a civil probe.

The stock sank 8.8% to $10.18, its lowest price since April 2009.

European stocks mostly fell following a report that the region's economy slowed down in the third quarter. The economy of the 19-country eurozone unexpectedly slowed in the third quarter. It expanded by 0.2% in the July-September period, which fell short of analyst forecasts. Experts say growth is likely to pick up again, but it's unlikely to match last year's strong performance as the region faces issues like Britain's departure from the EU, trade disputes and a clash with Italy over that country's budget.

Germany's DAX fell 0.4% and France's CAC 40 lost 0.2%. Britain's FTSE 100 added 0.1%.

A weakening of the Chinese yuan helped some stock indexes in Asia. Japan's Nikkei 225 index jumped 1.5% after official data showed that the unemployment rate dipped to 2.3% in September. South Korea's Kospi picked up 0.9 percent. Hong Kong's Hang Seng fell 0.9%.

Bond prices fell. The yield on the 10-year Treasury note rose to 3.12% from 3.08%.

Benchmark U.S. crude shed 1.3% to $66.18 per barrel in New York. Brent crude, used to price international oils, lost 1.8% to $75.91 per barrel in London.

Wholesale gasoline fell 1% to $1.81 a gallon. Heating oil lost 1.1 percent to $2.26 a gallon and natural gas declined 0.3% to $3.19 per 1 000 cubic feet.

Gold lost 0.2% to $1 225.30 an ounce. Silver rose 0.1% to $14.46 an ounce. Copper slumped 2.8% to $2.66 a pound.

The dollar rose to 112.96 yen from 112.35 yen. The euro fell to $1.1342 from $1.1390

equities  |  markets  |  global markets


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