Stocks traded mixed today as the Dow fell while the NASDAQ rose. At the close the Dow lost 78 points on very light trading volume to end the day at 26,179. After yesterday’s strong rally IBD switched stocks back to “rally” mode from “rally under pressure”.
The first quarter earnings reporting season is set to kick off next week. While stocks posted their best quarterly performance since the late 1990’s, stock analysts have generally been lowing earnings estimates for Q1. At the start of the year the gurus had forecast a 2.9% increase in earnings for the S&P 500 but now they are predicting a decline of 3.9%. The reason for the decline is tighter margins due to labor costs, the roll off of tax law changes and trade issues. Revenues for the index are expected to increase 4.8%. FactSet Research notes the forward PE ratio for the S&P 500 index is 16.3 which is below the 5-year average but above the 10-year average. The bottom line is that most market analysts are predicting a slow first quarter earnings season which could mark a bottom and that quarterly earnings will accelerate toward the end of 2019.
Walgreen’s, which is based in Illinois and operates 14,327 stores in 11 countries, reported worse than expected earnings today with a 5% revenue growth and a 5% net income decline. The company is facing competition from sellers like Amazon that are moving into the sector and making it easier to buy medications online. Walgreen’s has several ongoing initiatives to improve results. One is to cut costs and the other is to deliver product via FedEx. In the meantime however the stock looks like 10 miles of bad road and fell to a level not seen since 2014.