The markets took a beating today after getting off to a strong start. In early trading, stocks opened over 100 points higher on the news of strong early earnings reports, but then declined throughout the day, and at one point had taken a 750 point reversal. The Dow finished off 424 points to close at 24,024.
Pleasing investors has become a difficult thing to do. As a whole, earnings are 18% higher and 80% of companies have beat what was expected of them for the first quarter. Caterpillar and Google beat their earnings expectations and saw respective losses of 9.95% and 4.5% today. Thirty S&P 500 companies saw losses of 5% or more, mostly focused in industrials and technology. In some regards, 3M must be feeling good to only see a 7% decline after barely missing their earnings mark.
Investors seem to be getting very defensive as they try to figure out the variables. We’ve seen the news about North Korea and global trade wars, and now they’re also trying to calculate in four other questions: 1) Will these earnings reports be as good as it gets for the rest of the year? 2) Considering that the 10 year treasury briefly touched 3% today, what will its future price be? 3) What are interest rates going to look like with the Fed most likely raising rates at least 3 times this year? 4) How will commodity prices affect earnings?
As some analysts try to project future earnings, they have some concern over growing commodity prices. We’ve seen increasing lumber, steel, and oil prices, and companies have also mentioned that they are trying to factor in those future costs that they say “comes with no economic benefit”, at least to them. While it makes sense that industrial companies might have concern here, it seems like many of the tech companies that got crushed wouldn’t have that much of an issue with the rising cost of commodities.