Dow buoyed by earnings as IBM shares rise 7%
U.S. stock indexes posted a mixed finish Wednesday, with the Dow Jones Industrial Average lifted after solid earnings, while a plunge for shares of streaming giant Netflix Inc. drags down the Nasdaq as the S&P 500 ends with a small loss.
How did stocks trade?
- The Dow Jones Industrial Average DJIA closed with a gain of 249.49 points, up 0.7%, at 35,160.79, after rising 404 points at its session high.
- The S&P 500 SPX fell 2.76 points, or 0.1%, to end at 4,459.45.
- The Nasdaq Composite COMP dropped 166.59 points, or 1.2%, finishing at 13,453.07.
On Tuesday, stocks finished sharply higher across the board, with major indexes bouncing after consecutive losing sessions.
What drove the markets?
Stock indexes were initially buoyed as Treasury yields pulled back. The yield on the 10-year Treasury note BX:TMUBMUSD10Y fell to 2.836% from a Tuesday close of 2.941%, which was its highest since December, 13, 2018.
San Francisco Fed president Mary Daly said Wednesday that the U.S. central bank should move up its short-term target rate quickly to neutral levels, which stands at 2.5% according to most forecasts. “I see an expeditious march to neutral by the end of the year as a prudent path,” Daly said.
The Fed’s Beige Book report, an anecdotal compilation of economic activity across the country, showed expectations inflation will continue to run hot in coming months.
Meanwhile, investors have been keeping a close eye on earnings rolling out from several companies. In the spotlight was Netflix NFLX , which lost 35.1% on heavy volume.
The streaming content provider late Tuesday reported a net loss of 200,000 paid subscribers in the first quarter, against the 2.5 million net additions expected by analysts, also in line with the company’s own expectations.
Company executives announced they would further move to crack down on subscribers sharing passwords and consider a possible lower-priced subscription tier that includes advertisements. Several Wall Street analysts moved to downgrade their ratings and cut price targets on the shares.
“Netflix started last quarter a challenge to the assumption that the demand for a lot of companies that benefit from COVID would be longer-tail and wouldn’t just cut off like a spigot as we get back to normal,” Keith Buchanan, portfolio manager at GLOBALT Investments, said in an interview.
“If Netflix is the first of those types of companies, or at least the first big company among them to report earnings, it’s weighing on the rest of the group in a way that you know, you just don’t want to be in front of these names when they disappoint, given the valuations that the market has given them, even if they have sold off,” Buchanan said.
Roughly 12% of S&P 500 companies have reported first-quarter earnings thus far, with 80% of those names beating analyst expectations, according to FactSet.
In economic news, U.S. existing-home sales fell 2.7% in March from February to a seasonally-adjusted, annual rate of 5.77 million, the National Association of Realtors said Wednesday. Compared to a year ago, sales were down 4.5%. Economists polled by MarketWatch had projected existing-home sales of 5.75 million.
“Households are being squeezed from all angles and that’s clearly starting to affect spending behavior which could feed into other segments of the economy in the coming months,” said Craig Erlam, senior market analyst at Oanda. “With rates set to rise much further and faster than we’ve seen in decades, the housing data may come under further strain even if the inventory problem can be overcome.”
On the geopolitical front, a pivotal battle for control of Ukraine’s eastern industrial heartland of coal mines and factories was underway with Russia continuing to barrage cities across the country. Moscow also issued new ultimatum to the Ukrainian defenders in Mariupol to surrender Wednesday.
And in France, incumbent French President Emmanuel Macron and far-right contender Marine Le Pen squared off in a potentially decisive television debate ahead of Sunday’s runoff presidential vote.
What companies were in focus?
- Shares of other streaming video companies in addition to Netflix also fell, with Walt Disney Co. DIS falling 5.6%, Warner Bros. Discovery Inc. WBD down 6% and Paramount Global PARA down 8.6%. Stock in streaming device maker Roku Inc. ROKU tumbled 6.2%.
- Shares of Dow component International Business Machines Corp. IBM rose 7.1% after Big Blue forecast an optimistic 2022, with the only headwind being a loss of Russian business following quarterly results that came in slightly better than expected.
- Shares of fellow Dow component Procter & Gamble Co. PG rose 2.7% after the consumer products company reported fiscal third quarter profit and sales that beat expectations and raised its sales guidance.
- Baker Hughes BKR fell 3.8%, after the oil services company reported first-quarter profit and revenue that missed expectations, citing a “very volatile” market environment and continued supply chain constraints.
What are other assets doing?
- The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.7%
- Bitcoin BTCUSD was down 0.7% to trade around $41,250.
- Gold for June delivery GCM22 fell 0.2%, to settle at $1,955.60 an ounce.
- U.S. crude CL00 CL00 rose slightly, with the May contract finishing with a gain of 19 cents, or 0.2%, to end at $102.75 a barrel on the contract’s expiration day on the New York Mercantile Exchange. The new front-month June contract CL CLM22 settled at $102.19, up 14 cents, or 0.1%.
- In European equities, the Stoxx Europe 600 XX:SXXP rose 0.8%, while London’s FTSE 100 UK:UKX gained 0.4%.
- The Shanghai Composite CN:SHCOMP finished down by 1.4%, while Japan’s Nikkei 225 JP:NIK gained 0.9%.