Tesla (TSLA), United Parcel Service (UPS) and a handful of other stocks got moving on earnings news Tuesday. But broadly speaking, stocks mostly treaded water, with some investors likely keeping a watchful eye fixed on tomorrow’s Federal Reserve news.
“Wednesday’s FOMC statement is arguably the most important statement so far this year, as investors are increasingly trying to figure out when the Fed may start to pare back its Covid-19-related stimulus, since the economy is recovering at a faster-than-expected rate,” says Danielle DiMartino Booth, CEO and chief strategist of research firm Quill Intelligence.
On the earnings front, UPS popped by 10.4% after reporting a 164% surge in operating profits, as well as revenues and adjusted earnings that exceeded analyst estimates. 3M (MMM, -2.6%) easily trounced Wall Street expectations, too, yet was the worst performer in the Dow Jones Industrial Average (up marginally to 33,984) after it merely maintained its full-year earnings guidance.
And Tesla (-4.5%) helped drag the S&P 500 (down marginally to 4,186) Nasdaq Composite (-0.3% to 14,090) lower despite announcing a 74% jump in revenues and record quarterly net income of $438 million.
The major concern is that gains from Tesla’s bitcoin investment, as well as sales of emissions credits to other automakers – and not Tesla’s core business of building automobiles – accounted for virtually all of that profit.
“It was another mixed quarter, solid on gross margin but weakish on (earnings before interest and taxes) and (free cash flow), both propped up by ZEV and Bitcoin,” says David Wagner, portfolio manager at Aptus Capital Advisors. “Investors have been looking for a few things from Tesla, including the introduction of full self-driving technology, new production capacity and successful ramp of in-house batteries. TSLA did not touch on any of these, so we are not surprised by the muted market movement.”
Don’t be surprised to see similar moves out of the Nasdaq’s “FAANG stocks,” most of whom report this week.
Brian Overby, senior options analyst for Ally Invest, says the market is expecting a 4.0% move in Apple (AAPL), 4.1% for Google parent Alphabet (GOOGL), 5.5% for Facebook (FB) and 4.7% for Amazon.com (AMZN).
So far, so true for Alphabet. In Tuesday’s early after-hours trading, GOOGL shares were 4.1% higher after it reported better-than-expected Q1 profits and sales. Alphabet said ad revenues surged by 32% year-over-year.
“These might seem like big moves,” Overby says. “but they’re about average earnings reactions for FAANG stocks, relative to what we’ve seen over the past five years. While the market has been quiet these past few weeks, we’re expecting bigger moves than the marketplace is implying after earnings, especially in tech stocks.
Other action in the stock market today:
- The small-cap Russell 2000 improved by 0.1% to 2,301.
- U.S. crude oil futures climbed 1.7% to settle at $62.94 per barrel.
- Gold futures slipped a mere 0.1% to $1,778.80 per ounce.
- The CBOE Volatility Index (VIX) dropped by 0.8% to 17.50.
- Bitcoin prices rebounded 3.5% to $54,838. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
- After Tuesday’s close, Microsoft (MSFT) shares were trading 3.6% lower despite a strong quarterly report. The company reported stronger-than-anticipated earnings and revenue in its fiscal Q2, while sales of its Azure cloud computing product swelled 50%. MSFT had closed today’s session at a record high.
Keep an Eye Out for Dividend Hikes
Just remember: Earnings season isn’t just about earnings – for many of us, it’s about dividends, too. Many companies use their quarterly financial reports as an opportunity to announce “shareholder rewards” such as stock repurchase plans and dividend increases.
In fact, because many companies routinely upgrade their dividends at the same time each year, the question often isn’t when a dividend will be raised, but by how much.
For instance, Wells Fargo analyst Aaron Rakers recently predicted that Apple, which is among Wednesday evening’s reports, will offer up a double-digit dividend upgrade. If so, that would put Apple among a group of sterling companies.
When you think of dividend hikes, your brain likely wanders to regular raisers such as the Dividend Aristocrats, or their elite subset of Dividend Kings – but it’s worth noting that the size of these annual dividend increases, especially among the longest-tenured payers, doesn’t always impress.
If you’re looking for companies that still appear to be in the prime of their dividend-growth days, consider these 15 companies that have announced outsized dividend increases of between 18% and 38% over the past few months.