It's turned sunnier for the Dow Jones Industrial Average and the other major indexes this afternoon. In today's Midday Movers, we...
•...consider the market's abrupt turnaround;•...highlight an upgrade of Weight Watchers (WTW) and the reason for Bunge's (NG) big gain;•...explain how Whirlpool (WHR), which benefitted from tariffs earlier this year, could be hurt by steel and aluminum tariffs;•...and contemplate the bullish case for the Materials sector.
That feels much better, doesn't it? After trading down more than 100 points this morning, the Dow Jones Industrial Average has gained 259.63 points, or 1.1%, to 24,797.69 at 1:56 p.m. today. The S&P 500 has climbed 0.9% to 2716.21, while the Nasdaq Composite has risen 0.9% to 7320.06.
If tariffs were the reason for the market trading lower this morning then perhaps it's a glass half-full interpretation of President Donald Trump's remarks this morning that helped set stocks on a path higher. The President said that he would only lift the tariffs if Mexico and Canada agreed to renegotiate NAFTA. Now, if you're a pessimist like me, you might thing, well that's it, full tariffs ahead. But if you're more optimistic this might see a chance for the tariffs to be cancelled, and that would definitely be good for a market that was starting to price them in. Or maybe it's just because Paul Ryan told the White House to drop its tariff plan (O.K., it's Paul Ryan). One look at the Russell 2000, which outperformed on Friday because small companies might be less impacted by trade restrictions but is up just 0.8% to 1,545.18 today, tells you that might be true.
But make no mistake about it: Tariffs are bad. Real bad. "Higher input costs and a margin squeeze are the first order implications of tariffs," Goldman Sachs strategist David Kostin wrote in a note this morning. "Companies with high foreign sales exposure remain at risk from retaliation by US trade partners."
And we certainly don't need more risks right now, do we? - Ben Levisohn
Axon Enterprise (AAXN) has dropped 2.5% to $37.79 at 12:32 p.m. today after getting cut to Neutral from Buy at Sidoti, while Weight Watchers (WTW) has risen 0.6% to $62.58 after getting upgraded to Buy from Neutral at the firm.
The steel tariffs rolled out on Friday roiled markets --although not all stocks --and sent investors scrambling to determine winners and losers in any potential trade war, as well as the likelihood for higher steel prices. Strangely, Whirlpool (WHR), which had been a beneficiary of the last set of tariffs rolled out by the administration looks like it could be a loser from this one.
Remember, Whirlpool gained 3.2% on Jan. 23 when tariffs were placed on foreign-made washers and dryers, something that the U.S.-based appliance manufacturer had been asking for for a while. But the stock dropped 1.2% last Thursday and another 1.2% on Friday as tariffs on steel and aluminum dominated the market. KeyBanc argues that Whirlpool--which it downgraded to Neutral in late January--will be hit by the steel tariffs.
Whirlpool has advance d0.2% to $159.01 at 12:23 p.m. today. - Teresa Rivas
Materials stocks have underperformed lately, and that doesn't make a lot of sense to Jefferies strategist Sean Darby and his team. After all, the fact that lower corporate taxes were announced at the end of the year was just the icing on the cake for an industry that should have been benefitting from a weaker dollar and rising commodity prices.
Darby attributes the selloff in the sector to higher longer-term interest rates, which could force highly indebted companies in the sector to pay more for debt service. Darby, however, calls that "harsh," give the companies' strong free -cash-flow yields and better earnings revisions. Moreover, while higher input costs are weighing on margins, he notes that much of this gets passed on, so concerns about those are overblown as well.
Therefore, he argues that there's still reason to be bullish on materials. Aside from rising interest rates, the sector still benefits from a benign backdrop and upward earnings estimate revisions, while return on equity has bottomed out. He has Buy ratings on Freeport-McMoRan (FCX) and Nucor (NUE), down 0.2% and up 1.3% this afternoon, respectively. The Materials Select Sector SPDR Fund (XLB) is up 1%. - T.R.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.