Solid gains on Wall Street on Tuesday, July 25, sent the S&P 500 and Nasdaq to new records, while the Dow Jones Industrial Average missed out on its own by points.
The S&P 500 added 0.29% to 2,477, while the Nasdaq rose 0.02% to 6,412, turning around after spending the morning in the red. The Dow Jones Industrial Average jumped 0.47%, but fell short of a new record by less than 30 points. A mix of earnings was responsible for much of the day's moves.
Dow component Caterpillar Inc. (CAT) reported better-than-expected quarter and upbeat outlook. The heavy machinery company earned an adjusted $1.49 a share over its second quarter, far higher than estimates of $1.26. Revenue of $11.3 billion exceeded estimates of $10.9 billion. CEO Jim Umpleby said "construction in China and gas compression in North America were highlights in the quarter. He also said the company was seeing improved demand for construction across most regions.
McDonald's Corp. (MCD) , also a Dow component, jumped nearly 5% on an above-consensus second quarter. Net income of $1.70 a share rose from $1.25 a year earlier and beat analysts' estimates of $1.62. Revenue of $6.05 billion came in higher than an expected $5.96 billion. Global same-store sales increased 6.6%. U.S. same-store sales climbed 3.9%, above estimates of 2.9% growth.
3M Co. (MMM) was the worst performer on the Dow after disappointing revenue over its second quarter. Net income rose to $2.58 a share from $2.08 a share in the year-ago quarter. Analysts estimated earnings of $2.54. Revenue increased nearly 2% to $7.81 billion, below consensus of $7.87 billion.
Alphabet Inc. (GOOGL) breezed past analysts' earnings estimates and reported a double-digit increase in sales. The parent of Google earned $5.01 a share over its second quarter, 58 cents higher than consensus. Revenue surged 21% to $26.01 billion and exceeded targets by $410 million.
However, shares fell nearly 3% after the company hinted that rising costs could slow profit margin improvements. The company's total traffic acquisition costs increased to $5.091 billion and now represent 22% of Google's advertising revenue.
Jim Cramer and the AAP team said investors are worried about click metrics. For the quarter, aggregate paid clicks increased 52% year over year and 12% sequentially, with a majority of the growth stemming from the Google Properties division. However, aggregate cost per click declined for another quarter, in total declining 23% year over year and 6% sequentially.
"Overall, we are encouraged by the strong quarter despite the discouraging click trend. We believe GOOGL can be successful with its diversification away from advertising, but we understand the business represents the heart of its business and the process will take time," said Cramer and the AAP team.
Eli Lilly & Co. (LLY) topped second-quarter earnings and sales estimates. The drugmaker earned an adjusted $1.11 a share, 6 cents above expectations. Revenue increased 8% to $5.82 billion, beating consensus of $5.59 billion. For the full year, Eli Lilly anticipates adjusted earnings of $4.10 to $4.20 a share and revenue of $22 billion to $22.5 billion.
Shares fell nearly 3%, though, after the company announced that a new clinical study for its treatment of rheumatoid arthritis is needed before the Food and Drug Administration can move the drug toward market approval. The treatment is a joint project with Incyte Corp. The new study will delay a resubmission for a new drug application until after 2017.
Fellow drugmaker Biogen Inc. (BIIB) earned an adjusted $5.04 a share, far higher than $4.37 consensus. Revenue of $3.08 billion exceeded estimates of $2.81 billion. Biogen increased its full-year earnings outlook to $20.80 to $21.40 a share, up from previous guidance of $20.45 to $21.25. Biogen said an improved outlook was tied to "faster than anticipated adoption of [muscular atrophy treatment] Spinraza in the U.S."
General Motors Co. (GM) was slightly lower after a retreat from a number of Asian markets weighed on quarterly results. Net income of $1.7 billion fell from $2.9 billion in the same-quarter a year earlier. Around $1.3 billion in net income was tied to losses in its now-sold European operations.
- Jim Cramer on Apple, Alphabet, Facebook, Caterpillar, United Technologies, McDonald's, GM, Citigroup, Jimmy Choo, Boeing and Coca-Cola
Around 26% of S&P 500 companies have reported earnings so far this reporting season. Of those, 74.2% beat analysts' earnings and estimates and 71.1% have exceeded revenue consensus, according to Thomson Reuters data.
Crude oil prices burst above $47 a barrel on Tuesday on enthusiasm over the Organization of Petroleum Exporting Countries' willingness to extend production cuts. The bloc could extend cuts beyond March 2018, Saudi Energy Minister Khalid al-Falih said on Monday. Saudi Arabia agreed to cut its exports to a limit of 6.6 million barrels per day in August.
West Texas Intermediate crude was up 3.3% to $47.89 a barrel.
Energy names were among the best performers on Tuesday. Major oilers were higher, including Exxon Mobil Corp. (XOM) , Royal Dutch Shell PLC (RDS.A) , Chevron Corp. (CVX) , Total SA (TOT) and BP PLC (BP) . The Energy Select Sector SPDR ETF (XLE) added 1.2%.
The Federal Reserve will convene Tuesday with an announcement on monetary policy scheduled for Wednesday, July 26. Economists don't expect the central bank to make a change to interest rates (leaving the federal funds rate at 1% to 1.25%), though investors will comb through the Fed statement to discern when the Fed could begin to unwind its balance sheet. Most Fed watchers anticipate that process to begin at the September meeting at the earliest.
"There's getting close to zero chance of the Fed raising rates before December," Mike Piershale, president of Piershale Financial Group, told TheStreet.
Piershale noted that the Fed's decision to end its reinvestment policy in coming months should cause more concern for markets: "We do have some concern about that causing some volatility and it's such unprecedented territory I'm not sure if anybody honestly knows what it's going to do."
The Fed currently holds $4.5 trillion in Treasurys and mortgage-related bonds on its balance sheet. Unloading those would likely tighten monetary conditions in the same way an interest rate hike would. The Fed has emphasized that when it plans to do so, it will be a gradual process.
The prices of U.S. homes grew at a slower pace in May than expected, according to the latest S&P Corelogic Case-Shiller home price index. The index increased 5.7% over the three months to May, 20 basis points lower than anticipated. Denver, Portland and Seattle saw the best price gains.
The U.S. consumer continued to show outsized confidence in July, even as spending remains tepid. The Conference Board's Consumer Confidence Index hit 121.1 this month, higher than an expected reading of 116. The measure reached its second-highest level since 2000. Analysts expected confidence to dip after reaching 118.9 in June. Consumers were positive in the state of the labor market, noting that jobs were "plentiful."
Michael Kors Ltd. (KORS) agreed to buy luxury footwear brand Jimmy Choo PLC (JYMHF) for $1.2 billion. Michael Kors said it would pay 230 pence per share in cash, valuing Jimmy Choo's existing issued and to be issued ordinary share capital at about £896 million ($1.2 billion).
The price represents a 36.5% premium to the closing price of 168.5 pence on April 21, the day before JAB Luxury started a formal sale process for Jimmy Choo.
Following the completion of the acquisition, it's expected that Jimmy Choo will operate as it does today with the same management. Jimmy Choo has about 150 company-operated retail stores, 560 multi-brand stores and more than 60 franchise stores worldwide.
Barnes & Noble Inc. (BKS) rocketed nearly 10% higher on Tuesday after a call from activist investor Sandell Asset Management Corp. to sell itself. Sandell, a Barnes & Noble shareholder, said the bookstore retailer could garner bids of more than $12 a share.
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