Stocks eked out modest gains Wednesday after investors digested a slew of earnings reports from some of America’s largest companies, including Dow components Caterpillar and Boeing, shares of which rose despite both companies reporting weaker-than-expected earnings declines.
Wall Street is also watching developments pegged to Brexit, after a vote for a fast-track exit for Britain from the EU was rejected by parliament on Tuesday, but the delay eases concerns about the U.K. crashing out of the bloc without a deal on Oct. 31.
How did the major indexes fare?
The Dow Jones Industrial Average DJIA, +0.17% rose 45.85 points, or 0.2%, at 26,833.95, while the S&P 500 index SPX, +0.28% added 8.53 points to reach 3,004.52 a gain of 0.3%. The Nasdaq Composite Index COMP, +0.19%, advanced 15.50 points, or 0.2%, hitting 8,119.79.
On Tuesday, the Dow lost 39.54 points, or 0.2%, to 26,788.10, the S&P 500 index fell 10.73 points, or 0.4%, to 2,995.99, while the Nasdaq shed 58.69 points, or 0.7%, to 8,104.30.
What drove the market?
Results from Caterpillar Inc. CAT, +1.23% and Boeing Co. BA, +1.04% initially knocked the market lower in pre-market action on Wednesday, but stocks turned higher in early trading as investors took positives away from quarterly results from the blue-chip components.
Caterpillar missed both earnings and revenue estimates and cut its full-year 2019 earnings outlook. Boeing reported a 50% earnings slide that badly missed estimates and a revenue slide of 20% or less than expected, but also upheld its forecast for its 737 Max airliner, grounded since March, to return to service later this year. Caterpillar shares rose 1.2%, while Boeing’s stock added 1%.
The poor results from Caterpillar and Boeing came amid a slide in the semiconductor sector following a poor forecast from Texas Instruments Inc. TXN, -7.48% in a late-Tuesday earnings report, with a new revenue estimate range that fell as much as a half-billion dollars below Wall Street’s consensus forecast. That helped drag the PHLX Semiconductor Index SOX, -1.93% down more than 2%.
Equity markets swung from modest gains to modest losses in afternoon trade, weighed by technology shares and consumer discretionary stocks.
“The earnings bar was set very low for the third quarter and it’s been predictably easy for companies to step over it,” Michael Arone, chief market strategist at State Street Global Advisors told MarketWatch. “The market reacted with a bit of mixed emotions with these earnings, particularly with the U.S.-China trade overhang, as investors looked past some weak earnings due to the expectation of a trade resolution.”
Read: Boeing, Caterpillar report disappointing earnings, but their shares bounce back
Thus far, of the 98 companies that have reported third-quarter results in the S&P 500, 82.7% have delivered results above analyst expectations, while 12.2% reported below analyst expectations, according to research provider Refinitiv. By comparison, 65% tend to “beat” estimates, and 20% fall below consensus estimates, according to Refinitiv data going back to 1994.
That said, for companies that have fallen short of expectations, the magnitude of misses have been great. During October, blended earnings growth, which combines actual earnings results with projections for companies that have yet to report, has fallen from a 3% contraction to a 4.7% contraction, according to FactSet data.
Meanwhile, Parliament’s rejection of Prime Minister Boris Johnson’s legislative schedule for Brexit reduced the likelihood of a departure by Oct. 31 or a no-deal exit from the EU. The U.K. government has already asked for an extension to the end of January 2020, and European Council President Donald Tusk said on Twitter that he would recommend that request is granted.
For investors, this week is all about earnings though, even with a Federal Reserve meeting set to kick off in less than a week, said Randy Frederick, vice president of trading and derivatives at the Schwab Center for Financial Research. Companies are saying, “How we did this quarter isn’t as important as what we expect the future to hold,” Frederick noted.
The Fed announced earlier this month it will purchase more $60 billion a month in Treasury bills to prevent liquidity crunches that took place earlier this year and is also expected to cut interest rates for a third time this year next week.
“Investors have been more concerned about slowing growth, which is reasonable, but I think there’s been an overdose of pessimism about how resilient consumers are,” said Kate Warne, principal investment strategist with Edward Jones. She pointed out that third quarter earnings have a tough year-over-year comparison, since last year corporations got a boost from the late-2017 tax cuts. From that perspective, results that are slightly better than expected is solid, the strategist said.
“In an environment of job growth, ultra-low interest rates and central-bank stimulus, this is actually an okay environment and one in which you need to be putting money into stocks because they can continue to go higher,” she said.
Which stocks were in focus?
Texas Instruments TXN, -7.48% shares tumbled 7.5% after it reported earnings per share of $1.40, excluding certain items, versus the $1.42 analyst consensus and gave a forecast that was much worse than expected late Tuesday.
Nike Inc. NKE, -3.43% shares retreated 3.4% after the sports apparel company late Tuesday reported that longtime CEO Mark Parker was stepping down, effective January of next year. He will be replaced by John Donahoe.
Anthem Inc. ANTM, +1.25% reported a 23% increase in third-quarter net income to $1.18 billion, or $4.55 a share, as revenue rose 15% to $26.44 billion after increasing medical enrollment by 1.1 million and increasing premiums. Adjusted for items, Anthem said it would’ve earned $4.87 a share. The health-care company’s shares gained 1.3%.
Shares of Facebook Inc. FB, +2.09% were in focus as CEO Mark Zuckerberg will testify on the social-media giant’s effort to launch controversial digital-currency platform Libra. Facebook’s stock rose 2.1%.
Hilton Worldwide Holdings Inc. HLT, +5.55% revised its financial targets for the year on Wednesday. The McLean, Va.-based company said it now expects systemwide revenue per available room, or RevPAR, to increase about 1% on a currency neutral basis compared with 2018. The company had previously forecast an increase between 1% and 2%. Shares rose 5.5% on Wednesday.
Waste Management Inc. WM, -3.04% said Wednesday it had net income of $495 million, or $1.16 a share, in the third quarter, down from $499 million, or $1.16 a share, in the year-earlier period. Shares of the company fell 3%.
Chipotle Mexican Grill Inc. shares CMG, -5.16% fell 5.2% after the fast-Mexican company on Tuesday reported third-quarter net income of $98.6 million, or $3.47 a share, compared with $38.2 million, or $1.36 a share, in the year-ago period. Adjusted for items such as restaurant asset impairment expense and restructuring, among other things, earnings were $3.82 a share.
After the market closes Wednesday, EBay Inc. EBAY, +0.67%, Microsoft Corp. MSFT, +0.64%, Ford Motor Co. F, +1.54%, and Tesla Inc. TSLA, -0.35%. are due to report results.
How did other markets perform?
The 10-year Treasury note yield TMUBMUSD10Y, +0.10% fell to 1.761% on Wednesday from 1.768% late Tuesday in New York.
Oil futures turned higher on Wednesday after a U.S. government report showed a decline in U.S. crude supplies for the first time in six weeks. December WTI crude CLZ19, +2.57% , on its first full session as a front-month contract,rose $1.49, or 2.7%, to settle at $55.97 a barrel on the New York Mercantile Exchange. Prices were likely to mark their highest settlement so far this month.
Gold prices enjoyed a fillip from haven buying on Wednesday as a retreat in assets considered risky, amid political uncertainties like Brexit, underpinned gains in the yellow metal. Gold gained for a second day. Gold for December delivery on Comex GCZ19, +0.51% rose $8.20, or 0.6%, to settle at $1,495.70 an ounce, after trading little changed on Tuesday.
The ICE U.S. Dollar Index DXY, -0.07%, which tracks the performance of the greenback against six major rivals, fell less than 0.1% to 97.453.
Elsewhere, the Stoxx Europe 600 SXXP, +0.11% closed 0.1% at 395.03. In Asia, China’s CSI 300 index 000300, -0.64% finished off 0.6% at 3,871.08 and the Shanghai Composite Index SHCOMP, -0.43% slipped 0.4% to 2,941.62, while Hong Kong’s Hang Seng Index HSI, -0.82% fell 0.8% to reach 26,566.73. Japan’s Nikkei 225 NIK, +0.34% gained 0.3% to 22,625.38.
— Mark Decambre contributed to this report