Stocks Slip Amid Mixed Earnings, Awaiting FOMC Interest Rate Decision

Stocks took a breather the day after the S&P 500 set a new all-time closing high, slumping slightly on various earnings results that were a mixed bag.

Google parent, Alphabet (GOOG), started the dour mood after the close on Monday by missing EPS estimates by a wide margin. General Motors (GM) was another big name that fell short, reporting $1.20 per share against analyst estimates for $1.31. There were plenty of smaller firms reporting solid or neutral results for the third quarter, but the large caps dominated the news flow.

Drops on the main indices were contained, not unusual following a healthy upsurge. Waiting upon the Federal Reserve's FOMC policy decision announcement Wednesday afternoon (2.00 pm ET), trading was muted but not depressing.

When the market opens Wednesday, earnings reports will already have been released for some other big names, including Yum! Brands (YUM), General Electric (GE), and Sotheby's (BID).

Apple (AAPL), Starbucks (SBUX), and Facebook (FB) report after the close.

In between earnings releases and calls, the Fed will provide most of the excitement on Wednesday.

At the Close, Tuesday, October 29, 2019:
Dow Jones Industrial Average: 27,071.42, -19.30 (-0.07%)
NASDAQ: 8,276.85, -49.13 (-0.59%)
S&P 500: 3,036.89, -2.53 (-0.08%)
NYSE Composite: 13,209.63, +23.20 (+0.18%)

Dow Losing Streak Reaches Seven Days; Walgreens To Replace GE In Dow Index

No analysis needed to spot the recurring pattern of trading prominent on Wednesday. The Dow suffered its seventh straight losing session while the NASDAQ powered to new highs, mostly on the backs of the beloved tech stocks known as the FAANGs.

In the news, Walgreens Boots Alliance (WBA) is set to replace General Electric (GE) in the Dow Jones Industrial Average, effective prior to the open of trading on June 26. Walgreens is trading for 64.61, down from its all-time high of 86.55, June of 2015.

General Electric, which has been under pressure since near the end of last year, has lost nearly two thirds of its value in the past eight months. Shares have fallen from 31.60 per share in October, 2016, to the current per share price of 12.96. The company has lost over 80 percent of its value since 2000.

General Electric was an original member of the Dow when it was formed by Charles Dow in 1896 and a continuous member since 1907.

Since Walgreens is trading at five times the value of GE, an adjustment will be made to the Dow divisor, lest the index experience a rapid upside explosion due to the change. This is exactly how the Dow works, replacing weaker companies with stronger ones.

The is the 15th change in the structure of the Dow since 2004. Some of the companies formerly a part of the index but since removed in the 21st century include Eastman Kodak, International Paper, AT&T, AIG, Citigroup, Bank of America, General Motors, and Honeywell.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55
6/7/18	25,241.41	+95.02	+825.57
6/8/18	25,316.53	+75.12	+900.69
6/11/18	25,322.31	+5.78	+906.47
6/12/18	25,320.73	-1.58	+904.89
6/13/18	25,201.20	-119.53	+785.36
6/14/18	25,175.31	-25.89	+759.47
6/15/18	25,090.48	-84.83	+674.64
6/18/18	24,987.47	-103.01	+571.63
6/19/18	24,700.21	-287.26	+284.37
6/20/18	24,657.80	-42.41	+241.96

At the Close, Wednesday, June 20, 2018:
Dow Jones Industrial Average: 24,657.80, -42.41 (-0.17%)
NASDAQ: 7,781.51, +55.93 (+0.72%)
S&P 500: 2,767.32, +4.73 (+0.17%)
NYSE Composite: 12,648.74, +9.76 (+0.08%)

How the Dow Divisor Helped Industrials Blast Through 25,000

The Dow Jones Industrial Average isn't really an average at all.

If it were, one would take the price of each of the 30 components and divide the sum by 30. That would yield the average price. Since that number would barely move the needle on a day-to-day or minute-by-minute basis, something more was needed to satisfy the voracious appetite of investors. Ergo, the Dow Divisor.

The Dow Divisor is 0.14523396877348. Since it's a fraction of a point, the divisor doesn't actually divide anything. Rather, it's a multiplier, which serves to enhance the gains of the higher-priced stocks and minimize the losses of lower-priced shares. That explains why declines on the Dow are serious events. It's rigged to go higher regardless of volume.

One can clearly see - using such a valuation (weighted) method - why tin-hat theories abound about market manipulation. The Dow leads the market, not only in the US, but around the world. A big move on the Dow triggers the herd instinct to buy other stocks.

Boeing (BA) was the biggest percentage gainer on the day, adding 11.46 points to 371.56. But, thanks to the divisor, Boeing contributed nearly 79 points to the overall Dow gain, despite less than 4.5 million shares changing hands.

By contrast, General Electric was the big loser, dropping 1.16%. But, since GE is the lowest-priced stock on the index, by far, at 13.64, the point loss was a mediocre 0.16. The magic of the divisor meant GE's loss to the overall index was a measly 1.10 points, despite the fact that more than 62 million shares were traded, more than the total number of shares in the three next most-widely traded stocks, Pfizer (PFE), Microsoft (MSFT), and Intel (INTC) combined.

Only four Dow stocks traded lower on the day. In addition to GE, Wal-Mart, Pfizer, and The Travelers finished down, though modestly. Also contributing to the day's massive spike were 3M (MMM), Goldman Sachs (GS), and United Health (UNH), each trading above 200 per share. Their combined advance of 10.77 points were good for another 74 Dow points, despite the fact that they were three of the four least-traded stocks on the exchange (Pfizer was the second least-traded).

So, four low volume stocks were good for 150 points on the Dow. The other 22 gainers were cannon fodder against the bear case as the Dow Industrials outpaced the other indices by a wide margin. The day's gain resulted in the highest closing price on the Dow since March 13.

Happy Dow divisor days!

A couple of good reads on the Dow divisor can be found here and here.

Dow Jones Industrial Average June Scorecard:

Date	Close	Gain/Loss	Cum. G/L
6/1/18	24,635.21	+219.37	+219.37
6/4/18	24,813.69	+178.48	+397.85
6/5/18	24,799.98	-13.71	+384.14
6/6/18	25,146.39	+346.41	+730.55

At the Close, Wednesday, June 6, 2018:
Dow Jones Industrial Average: 25,146.39, +346.41 (+1.40%)
NASDAQ: 7,689.24, +51.38 (+0.67%)
S&P 500: 2,772.35, +23.55 (+0.86%)
NYSE Composite: 12,778.23, +119.53 (+0.94%)

Stocks Stumble Early, Rally for Minor Gains; GE Tumbles, Halves Dividend

Stocks continue to show weakness on a day-to-day basis, with implicit underpinning via central bank purchases, much as was the case today as General Electric (GE) posted horrifying third quarter numbers which cost the stock more than seven percent of its market capitalization [19.02, -1.47 (-7.17%)].

The company cut its annual dividend in half, from $0.24 to $0.12, and announced a broad-based restructuring, shedding up to $20 billion of its core assets.

Jeff Immelt, former CEO and Chairman of the Board, had been under pressure from investors to make changes until his ouster just weeks ago.

There's speculation that General Electric could be bounced from the Dow Jones Industrial Average, a position its held since November 7, 1907, having fallen by as much as 35% in the past year while the overall market has posted strong gains. GE is the oldest continuous member of the blue chip index.

GE's hammering at the open no doubt contributed to the dour mood in the early going, but stocks regained their footing and gradually advanced throughout the somewhat lackluster session.

The Dow closed at a new all-time high last Tuesday, but has been subdued since. With the year of 2017 drawing to a close and many fund managers closing their books (or already having done so), it will be interesting to watch the movement of the major indices over the coming weeks and through the holiday season.

Black Friday is a mere 11 days off. Gobble, gobble.

At the Close, Monday, November 13, 2017:
Dow: 23,439.70, +17.49 (+0.07%)
NASDAQ: 6,757.60, +6.66 (+0.10%)
S&P 500 2,584.84, +2.54 (+0.10%)
NYSE Composite: 12,316.83, -5.78 (-0.05%)

Market Week In Review: December 10-16, 2016; Stocks Moribund, Silver Slammed, Oil, Banks Up

Highlighted by Wednesday's (Dec. 14) FOMC rate policy announcement, the week as a whole saw its fair share of ups and downs, mostly confined to intra-day movement, but eventually ending mildly positive, at least for stocks.

The Dow recorded a pair of all-time closing highs on Monday and Tuesday, but failed to reach for the stars after the Fed announced a 0.25% hike in the federal funds rate, the first in exactly one year. The move from 0.25-0.50 to 0.50-0.75 triggered a sharp sell-off in Wednesday afternoon trading, though stocks recovered nicely on Thursday and ended flat on Friday.

If the week was uneventful for stocks, it was not the same for commodities, particularly silver and gold, or for the US dollar, which reached nearly-unprecedented highs over 102.20 on the Bloomberg dollar index. As the dollar gained, the precious metals were slammed, gold losing over $30 top to bottom, but eventually leveling off at $1134.60 at Friday's finish, a loss of just $26 from the rate announcement. Silver took a much harder hit, dropping in price on the COMEX from $17.10 an ounce on Wednesday to end the week about a buck lower, at $16.07, a six percent loss.

Following OPEC's announced production cuts for 2017, crude spiked over $55 per ounce, but retreated during the week, still ahead somewhat at 53.03 as the week's trading closed out. Despite the strong dollar - supposedly a brake on oil prices - oil managed to ramp up to the highest price in three years.

Financials and industrials led the way for US stocks, not surprisingly continuing the Dow rally spurred forward by notables Goldman Sachs, 3M, Boeing, and General Electric. The Dow Industrial Average being the only major index to finish in the green for the week, markets continue to show strength in only the largest of large caps while smaller stocks are only being nibbled upon and, in the main, sold. The fracturing of markets into large leaders and small losers cannot bode well for the continuation of any meaningful rally going forward.

Naturally, with the Fed hiking rates, if only modestly, Treasuries were sold, but mainly on the short-duration issues. The five-year note broke through the mythical 2.00% threshold this week (2.05%), while the 10-year popped briefly above 2.60%, clinging close to that level as markets went dark for the weekend (2.57%). A flattening yield curve was evident as the 30-year bond remained steady, at 3.16%, pushing down the spread between fives and thirties to a unitary 1.11%.

All of this came against a backdrop of national news media hyping futile and largely-baseless claims by the US intelligence community that Russia hacked the 2016 presidential election, somehow making Vladimir Putin responsible for the election of Donald J. Trump (who will be formally elected by the Electoral College on Monday) and the demise of Hillary Clinton, the choice of the much-discredited leftist status quo.

The folly of the intelligence claims was completely ignored by Wall Street, and rightly so. The last thing investors need is a fresh injection of political skullduggery, after slogging through nearly two years of endless campaign rhetoric from all sides.

With a week left before Christmas, retailers have yet to ring bells of any kind, neither of alarm or of joyous peals f profit. The Christmas shopping experience over the past decade has morphed from mad dashes on Black Friday to a controlled button-pushing event on computers nationwide, as the internet has revolutionized the retail buying experience and forever changed the shopping mall landscape and holiday experience.

With two weeks remaining in 2016, it's likely that markets will respond to calmer views going forward though a sharp Santa Claus rally, taking the Dow beyond 20,000, is a distinct possibility over the final ten trading days of the year.

At The Close: Friday, December 16
Dow: 19,848.60, -3.64 (-0.02%)
NASDAQ: 5,437.29, -19.56 (-0.36%)
S&P 500: 2,258.20, -3.83 (-0.17%)
NYSE Composite: 11,122.44, -9.46 (-0.08%)

For the Week:
Dow: +86.65 (0.44%)
NASDAQ: -7.34 (-0.13%)
S&P 500: -1.46 (-0.06%)
NYSE Composite: -66.57 (-0.59%)

Weekly Recap for W/E April 10, 2015: Economy Weak, Stocks Leap

Stocks and bonds have gotten to a point which indicate there won't be a rate increase to the Federal Reserve's most basic federal funds rate until at least September of this year and quite probably, beyond that.

Dependent upon data flows to determine whether the economy (or more specifically, the stock market and the 1% of the population that owns them) is strong and durable enough to withstand raising rates from the zero-bound to something higher, say, 0.25 percent or, as some have cynically put forth, 0.125 percent.

Data has been daunting to the Fed. Industrial production, durable goods and advance figures on first quarter GDP have all been short of expectations, adding to the pain which last week's March non-farm payroll figures presented. Of course, stocks, which have become the only game in town, loved the weak numbers, because it puts any thought of a rate increase on a semi-permanent hold, meaning free-or-nearly-free money and credit, with which it is an easy task to invest and make money.

So, we have the twisted dynamic of bad news on the economy being nothing but champagne and rose for players of stocks, and that was well reflected in this week's trading, with all the indices heading back toward all-time highs. This followed a brief respite in March, as speculators nervously sold out of equities, thinking that the Fed might increase rates in June.

The NFP data crushed that line of thinking, and sent stocks off like rockets this week, concluding with Friday's nifty rise, sending the Dow back over 18,000 once again and the NASDAQ within shouting distance of the magical 5,000 mark. The final day of trading for the week was bolstered by an announcement from General Electric (GE), stating that the company would sell nearly all of its GE Capital financing unit and real estate holdings (about $23 billion) to Blackstone and Wells-Fargo, two companies, which over the past seven years since the housing bust, have become the nation's new landlords. GE put forward a plan to repurchase some $50 billion worth of its own shares over the next three years.

Timing of the deal isn't very curious at all. GE has been stock in a range for the past fifteen years, and, with interest rates such a challenge by which to make profits, CEO Jeff Imelt and his executive team probably felt it was due time to return to its industrial roots. It does set precedent, however, by selling such a large chunk of real estate and real estate financing assets to companies that are already heavily entrenched in the sector, putting an exclamation point at the end of the boom-gone-bust that is damning to capitalism and competition.

GE's buyback provisions will not be put to scrutiny. Wall Street loves dilution, making shares more valuable to the fewer who hold them. With a market cap of nearly $298 billion, GE had room to maneuver, but the key question remains, by lopping off more than a quarter of its asset base, is the company going to generate better returns?

It's already at nosebleed levels, with a P/E of 19 and an annual divided of 0.92, meaning it will take the plunger who invests in the stock today nearly 31 years to double his/her money on the dividend alone. That's a long time, and, with arduous risk implanted.

Nonetheless, stock junkies loved the deal, boosting shares of GE by nearly 11% on the day and making the Dow the percentage winner among major indices.

For the week the Dow Industrials jumped 294.41 points (1.66%); the S&P added 35.10 (1.70%) and the NASDAQ was the big winner for the week, gaining 109.04 points (2.23%).

On the day:
Dow 18,057.65, +98.92 (0.55%)
S&P 500 2,102.06, +10.88 (0.52%)
NASDAQ 4,995.98, +21.41 (0.43%)

Editor's note: Due to unforeseen circumstances and largely, common sense, Money Daily will soon be converting to a weekly format - with the occasional daily post thrown in on major news developments - to present a more robust and well-reasoned approach to our readers. The daily noise and rigid schedule has made it difficult to offer a cogent, thought-provoking view, which is our purpose. In coming weeks, readers should be advised to seek out the weekly recaps, published on Friday evenings, or, more likely, Saturday afternoons.

Stocks Rise, Then Fall, End Flat; Dow Up 16X in 31 Years Though Not the Same

Stocks flew at the open, making the highs of the session, then backtracked, recovered and finally flat-lined until 3:00 pm ET, when selling commenced, taking the indices back to break-even for the day.

It was mostly a senseless trade, kicking off a holiday-shortened week which will feature lower volume than usual (if that's possible) and giddiness surrounding the holiday shopping season, which almost always produces an up session on the short Friday after Thanksgiving.

A few friends were commenting on the wisdom of a buy and hold strategy for the long haul as the Dow Jones Industrials crossed the 16,000 threshold this past Friday. One idea was that holding an index fund of Dow stocks from late 1982 to the present would have resulted in a 16X return on your money, or $10,000 invested in the Dow in 1982 - the last time the Dow crossed the 1000 mark and did not fall below it - would be worth $160,000 today.

It's an interesting concept, but, in case somebody wanted to just buy all the individual stocks in the Dow 30 blue chips, it would have probably been a more profitable, albeit time-consuming endeavor. Of the 30 stocks in the Dow today, only 10 of them were part of the index back in late 1982.

Those ten are AT&T, American Express, IBM, duPont, 3M, Proctor & Gamble, GE, United Technologies, Merck and Exxon (merged with Mobil to form ExxonMobil).

In those 31 years, the composition of the Dow changed 13 times, including eight times since 2003. Not to say that the stocks in the Dow are all magnificent winners, but how one gets a 16X return is by taking out under-performers and replacing them with stocks which have a better chance of appreciation, kind of a shell game, though one could have done well just holding any fund indexed to the famous average.

By way of comparison, the S&P 500 rose from about 140 to the current level just above 1800 in the same time period, a gain of just over 13X. Of course, the S&P has even more movement in and out of the index, and weightings are changed periodically. Overall, it gets re-jiggered more often than the Dow.

It's how Wall Street produces outsize profits for investors; they change the game constantly or as conditions warrant. It begs the question of the wisdom of individual issues and fast money trading.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." --Henry Ford

DOW 16,072.54, +7.77 (+0.05%)
NASDAQ 3,994.57, +2.92 (+0.07%)
S&P 1,802.48, -2.28 (-0.13%)
10-Yr Note 100.10 +0.09 (+0.09%)
NASDAQ Volume 1.74 Bil
NYSE Volume 2.99 Bil
Combined NYSE & NASDAQ Advance - Decline: 2701-2954
Combined NYSE & NASDAQ New highs - New lows: 532-96
WTI crude oil: 94.09, -0.75
Gold: 1,241.20, -2.90
Silver: 19.88, +0.02
Corn: 431.25, +2.00

Reality Catching Up to Wall Street on Earnings Misses, Fears

Around June, this author told a particularly self-absorbed, furtive individual that there would be a market "event" shortly before the presidential election, designed to offer the impression that the economy, under president Obama, was failing in multitudinous ways, designed to usher in Mitt Romney as the next occupant of the White House.

Until today, that prediction seemed somewhat unreasonable, as stocks have risen sharply during the summer months, but, as third quarter earnings - in addition to various warnings from the likes of the IMF and World Bank - are proving, the US and global economies are far from what anyone would consider healthy.

Today's sharp sell-off was the product of many misses and warnings by huge multi-national companies that either missed earnings and/or revenue estimates or issued warnings for the months ahead.

Among those companies that fell short of Wall Street's lowered estimates after Thursday's close and prior to Friday's open were McDonald's (MCD), Microsoft (MSFT), Google (GOOG), high-flying Chipolte Mexican Grill (CMG), and General Electric (GE). The misses came behind similar poor showings from Intel (hit a 52-week low today) and IBM, earlier in the week and proved quite a few sell-side analysts correct in predicting that this quarter would be very rough from an earnings perspective.

Truth be told, even those companies beating earnings estimates are not beating by much, with some exceptions, and are generally hitting targets that are lower than the previous years numbers, which, as the market is a continuous-discounting mechanism, means stocks are going in reverse, with earnings falling, not growing.

That alone should explain today's deep, across-the-board, declines, but also brings into question the entire philosophy behind central bank easing and money printing on a global scale. Sure enough, easy money has propped up banks and companies and a multitude of stocks and indices, but the end result of funny fiat money always reverts to a point at which currencies become worthless and derivative instruments, such as stocks, and, further out, bonds, lose value and we could be nearing the conclusion of the failed stimulative experiment that's fixed nothing since the crash of 2008.

Speaking of crashes, today's drop pales by comparison to what occurred 25 years ago to the day, the well-known stock market crash of 1987, when the Dow Jones Industrial Average fell by 23%. It was a seminal market event that will probably (hopefully) never be repeated, as there are supposedly more safeguards and triggers - to say nothing of the PPT - to prevent such a disastrous one-day event.

That is not to say that markets, stocks and indices cannot fall hard over periods of time, though it is far too soon to call today's action the beginning of such a a downward spiral. However, with tech stocks and industrials feeling the heat from investors in an earnings season that has been short on enthusiasm and long on fear, the coming weeks, especially with the November elections as a backdrop, could produce some calamities such as have already been seen in individual stocks, many of which were grossly overvalued and highly speculative, Chipolte and Apple come immediately to mind.

Checking the charts, it's useful to point out that the Dow and S&P broke through their 50-day moving averages and closed just about right on them, a position last seen a week ago, before Monday and Tuesday's "savior" rallies pushed equities back to something of a triple top, which has now broken down in a dramatic reversal. Today's declines on the two indices were the worst since mid-June. Shortly thereafter, both indices progressed above their 50-day MA, but have now returned to the roost, setting up a very unsettling weekend and a potential breakdown on Monday or further on during the week.

As for the NASDAQ, today's worst percentage loser, that index has been screaming red for a month, having busted through its 50-day MA eight sessions ago. Any further deterioration in the beloved NAZ could trigger a serious correction, as it is already down 7% in the past month.

Looking ahead to next week, earnings reports are due out on some big names, such as Cattepillar (CAT), Las Vegas Sands (LVS), Yahoo (YHOO) and Texas Instruments (TXN) on Monday; 3M (MMM), Coach (COH), Facebook (FB) and United Parcel Service (UPS) on Tuesday; and, on Wednesday, Boeing (BA), Eli Lilly (LLY), General Dynamics (GD), Lockheed Martin (LMT) and O'Reilly Automotive (ORLY).

Those mentioned above are but a smattering of companies reporting, in what will be the busiest week of earnings season. CNBC and Bloomberg will be looking for rays of hope, while investors may have a more wary eye toward more companies missing on earnings and revenue.

One economic data point worth noting was existing home sales for September, falling 1.7% to an annual run rate of 4.75 million, well below most estimates.

Until then, the long weekend waiting game, and, on Monday night, the final presidential debate, followed on Wednesday another FOMC rate policy decision, which will probably be nothing more than a formality.

Naturally, there will be the usual can-kicking and posturing from Europe, which still cannot come up with plans for either Greece or Spain, which may or may not be part of the plan to hold off the bad news until after our elections. One can hardly wait.

That is all... for now.

Dow 13,343.51, -205.43 (1.52%)
NASDAQ 3,005.62, -67.25 (2.19%)
S&P 500 1,433.19, -24.15 (1.66%)
NYSE Composite 8,324.14, -118.68 (1.41%)
NASDAQ Volume 2,194,602,500.00
NYSE Volume 3,851,036,250
Combined NYSE & NASDAQ Advance - Decline: 1168-4339
Combined NYSE & NASDAQ New highs - New lows: 166-117
WTI crude oil: 90.05, -2.05
Gold: 1,724.00, -20.70
Silver: 32.10, -0.771