Dow Jones Sees Uneven Growth as Record High Is Due to Only Four Companies
The Dow remains above 20,000 points and continues its record gains despite the economic uncertainty following President Trump’s first weeks in office. However the new high masks mixed results. The energy sector has fallen by one percent, led by a drop in oil prices, thanks to new U.S. and Canadian pipelines that are expected to finish construction shortly. While 65 percent of public companies performed better than expected at the end of 2017, according to quarterly earnings reports, the Dow gains in the first month of 2017 were due to only four stocks: Apple, IBM, Visa, and Boeing.
Apple Stocks Surge on Strong iPhone Sales
Apple stock is now at its highest price in the last twenty months, following a spectacular earnings report for Q4 2016. CEO Tim Cook advised that the company had broken a record for the number of iPhones sold within a single quarter. The market reacted strongly, and stock prices went up by more than 6 percent on Wednesday, which created $40 billion in additional value overnight. Given several upcoming releases expected over the next few months, some analysts are even suggesting that Apple’s stock price could reach $200 by the end of the year.
IBM Profits From Low Expectations
IBM quieted naysayers after announcing its first stock price gain year over year since 2013. Ironically, this may have resulted from the market’s low expectations, as revenues are still soft. However, the company did better than expected in each quarter of 2016, and after completing a number of one-time expenses related to tax write offs and restructuring, IBM hopes to return to profitability by the end of the year. CEO Ginni Rometty received a bonus worth nearly $5 million for hitting her annual revenue and cash flow targets.
Visa Scores Big on Electronic Payments
Visa is also outperforming expectations, as payments went up by almost 50 percent for Q1 2017. The company has been making a strong shift into fintech, creating much of the new technology which safeguards payment transactions from identity theft and fraud. Over the last year, the company has consolidated its investments in Europe, and is now reaching out to emerging markets such as India. Given increasing consumer reliance on electronic payments, analysts are expecting a bright future for the payment processor.
Boeing Makes Record Deals in UAE, Iran, and India
Boeing’s outlook is slightly more complicated. The airplane manufacturer has received large orders from several national airlines, including the UAE Emirates Airlines, and Iran Air. SpiceJet, the fourth largest airline flying in India, also announced that it will be spending $22 billion on new Boeing jets, the largest deal ever signed by Boeing in India. This has led to the company’s stock reaching its highest price in over a year.
Chinese Tariffs Could Send Boeing Orders to Airbus
Unfortunately, President Trump may take a toll on Boeing’s bottom line, as the new administration feuds with China and Iran. China is threatening to move its orders from Boeing to European competitor Airbus, after Trump promised to place tariffs on Chinese imports. Last week, the United States reinstated sanctions against Iran following missile testing which violated an agreement signed as part of the 2016 nuclear arms treaty drafted by President Obama.
Trump’s Feud with Iran Threatens Boeing’s Stock Prices
Per the agreement, Iran cannot test ballistic rockets for eight years. Iranian President Hassan Rouhani ordered a second round of rocket testing the day after sanctions were announced. Boeing needed special permission to complete the $16 billion jet deal with Iran. This deal is likely to produce about 100,000 jobs in the United States. If Trump revokes this permission this could seriously impact Boeing’s 2017 earnings.
Dow Performance Is Uneven
The success of these companies masks the disappointing performance of the rest of the Dow portfolio of stocks. The energy sector in particular is under-performing, led by a 1 percent fall in oil prices. Crude prices dropped as the OPEC initiated production cap faltered. This was due to increased production by the United States and Canada. President Trump approved two pipelines sidelined by the previous administration. This left economic experts assured of relatively large oil supplies, stabilizing prices.
How the Dow Jones Performance Affects Trading
Although the Dow is hitting record numbers, uneven gains spread throughout the stocks included in the index. Watch for the Dow to cling near 20,000 points for the next few months. This will last until the effects of reduced regulation are clearer. The S&P 500 may see a drop, as it includes a broader basket of stocks.
Apple and Visa success will continue in 2017, as their stock prices are based on profitability and net growth. IBM stock prices may continue their climb if the company can achieve net profits in Q2 2016. Investors should be cautious of Boeing shares. U.S. foreign policy could strain the company’s ability to sell to the Middle East and Asia.
Oil prices should stabilize as increased production in the U.S. matches up against restrictions from OPEC. Gold is a gold alternative commodity as a safe haven. Trump’s economic and foreign policies are also keeping the dollar down.