Throughout their history, the Dow and S&P 500 have been used interchangeably to describe the overall stock market. For a long time, the Dow was the market to nearly all investors. It is easier to analyze 30 as opposed to 500 stocks. But these days, the S&P 500 is more quoted, largely because the financial services industry has endorsed it.
What can and can't Dow Jones track?
The Dow Jones Industrial Average highlights the good and bad of today's markets. On the other hand, you cannot track some large stock giants that don't pay a dividend. Facebook, Inc. (NASDAQ: FB), Alphabet, Inc. (NASDAQ: GOOGL) and Amazon.com, Inc. (NASDAQ: AMZN), along with a few other NASDAQ giants, skyrocketed during the past decade. But they are not in the Dow. Moreover, they are practically an asset class by themselves. As for everyone else, the Dow should do the job.
The latest earnings report of 3M (NYSE: MMM) was disappointing to say the least. Its organic sales declined 13.1% in the second quarter. 3M's disappointing sales performance is a consequence of it being exposed to badly hit markets. Safety and industrial were hit by the slowdown in the automotive and aerospace markets. Transportation and electronic boarded that same train. Even healthcare dropped as COVID-19 pandemic has caused delays in elective procedures and closed dental offices all over the world.
Weakened consumer purchasing power
Severely weakened consumer purchasing power has been shown by American Express Company (NYSE: AXP) earnings that plunged as consumers were forced to stay home. On the other hand, Visa, Inc. (NYSE: V) recently provided an earnings beat despite the still ‘frozen' travel category, showing a glimpse of economic recovery thanks to e-commerce.
Speaking of travel, Boeing Co. (NYSE: BA) earnings were as bad as it gets. The company reported a loss of $4.79 a share on $11.8 billion in sales for the second quarter whereas analysts expected a loss of $2.57 a share on $13 billion in sales.
Oil and gas fighting for survival
Even the oil giants are existentially threatened. There is hardly an oil company with a strong balance sheet like Chevron Corporation (NYSE: CVX) yet the pandemic crushed its profits. Together with its oil peer Exxon Mobil Corporation (NYSE: XOM), these are the only two oil giants that have the status of Dividend Aristocrats. But, maintaining that dividend comes at great cost as the second quarter was disastrous for both. Exxon raised a major new debt as it increased its long-term debt from $26.3 billion at December 31, 2019 by $20.2 billion until June 30, 2020. The cash position at June 30, 2020 was $12.6 billion which means that even with the debt, Exxon does not have sufficient cash to cover 12 months of dividend payout.
Caterpillar Inc. (NYSE: CAT) saw its bottom line melt 64% compared to its prior year. Although its second-quarter revenues of $10 billion topped estimates of $9.2 billion, the top line dropped 31% due to lower sales volume. The pandemic diminished demand and consequently, dealer inventories were impacted negatively.
Failing to keep up with Big Tech
On Wednesday, Cisco Systems, Inc. (NYSE: CSCO) just reported its fourth consecutive revenue decline in its quarterly guidance. The 9% revenue decline resulted in its shares falling approximately 6% during extended trading. While much of the technology sector is seeing growth as the economy is getting an online shape and companies are turning to software to run their businesses, Cisco is struggling to keep up. The problem is that its core business has been centered around expensive hardware. Hardware has been pushed aside by cloud giants. The company's investments in software wasn't enough to come near Amazon, Microsoft and Google. But at least it topped estimates with 80 cents of adjusted earnings per share vs. 74 cents per share expected by Refinitiv. Revenue was $12.15 billion as opposed to the $12.08 billion expected.
Intel Corporation (NASDAQ: INTC) fall could get even worse. Its shares plunged following its second quarter results that saw revenue come in 6.3% better than estimates at $19.7 billion. Earnings also came in ahead of forecasts by 10.7% at $1.23. It's the earnings guidance for the third quarter that is causing concern. Since the report, analysts have been lowering their estimates, fearing that its shaky stock could led to big losses.
The House of Mouse came close to burning in flames
The iconic business model of Walt Disney Corporation (NYSE: DIS) that many failed to copy is what made the legendary House of Mouse perfectly exposed to the pandemic. COVID-19 has shuttered Disney to pieces during the first two quarters. And if there wasn't for its streaming star that now exceeded 60 million subscribers, it would have been in ashes by now. The net adverse impact of the pandemic on its current quarter operating profit across all business has been about $2.9 billion. Moreover, during the second quarter, pandemic-induced theme park closures melted its operating profit by 58%.
Altered consumer behavior
Walgreen Boots Alliance (NASDAQ: WBA) profit has declined over the last three years, even though its revenue has increased. But in July, the company announced a $1.0 billion investment into VillageMD. This investment also includes opening 500 to 700 physician-staffed clinics inside their locations across 30 markets over the next five years. This big news was announced just a few days before third quarter earnings that showed substantial negative operating income due to the pandemic. Although it was expected that COVID-19 has temporarily altered consumer behavior, Walgreen's report showed that some of these changes could be in for the long-haul.
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