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Stocks - Wall Street Weighs Weak Dow Earnings Against Strong GDP Reading

Published 04/26/2019, 09:50 AM
Updated 04/26/2019, 09:55 AM
© Reuters.

Investing.com - U.S. stocks ticked lower in early trading Friday as disappointing earnings news from Dow components offset better-than-expected economic growth in the first quarter.

At 9:48 AM ET (13:48 GMT), the Dow Jones fell 33 points, or 0.1%, at 26,429.40 points, the S&P 500 dropped 4 points, or 0.1%, to 2,922.27 points, while the Nasdaq Composite traded down 43 points, or 0.5%, to 8,075.66 points.

Putting pressure on the Dow, Intel (NASDAQ:INTC) plunged more than 8% after the company slashed its forecasts for the rest of the year on Thursday and reported its first quarterly drop in sales of data-center chips in seven years. It said sales had slowed “dramatically” in China against the backdrop of its trade dispute with the U.S.

Exxon (NYSE:XOM) stock sank 2% after the oil major reported first-quarter earnings that missed estimates.

Rival Chevron (NYSE:CVX) also saw shares drop 0.5% after reporting a 27% decline in first-quarter profit.

The string of disappointing earnings from Dow components on Friday follows a similar pattern seen a day earlier when industrial giant 3M (NYSE:MMM) dampened bullish sentiment.

But the earnings season is not as dismal as these results from blue-chip companies may imply.

The reporting season is nearing the halfway mark, with 228 of the S&P 500 companies having released their first-quarter numbers. So far, 78% of those reporting have beaten profit estimates on growth of 6.9%, while 61% have topped consensus on sales thanks to 4% growth.

“Estimate cuts this earnings season are not nearly as bad as they were last quarter,” analysts from The Earnings Scout pointed out.

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On the economic front, gross domestic product jumped 3.2% in the first quarter, according to government data released on Friday, defying expectations for what would have been the slowest expansion in two years.

Analysts remained cautious, however, pointing to temporary factors for the jump in growth.

“Taking out the over-sized boosts from net trade, inventories and highways investment, which will all be reversed in the coming quarters, growth was only around 1.0%,” Capital Economics analyst Paul Ashworth said.

Joseph Brusuelas, chief economist at consultancy RSM US, insisted that the numbers were not a game changer for the Federal Reserve’s monetary policy.

“Fed policymakers are going to look right past that 3.2% top-line number and focus on composition of growth, which will reaffirm its prudent pause. No rate hikes or cuts until after the 2020 election,” he said.

A Bloomberg poll of economists released ahead of the GDP release showed that consensus is in agreement with Brusuelas, with no moves expected in interest rates through 2020.

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