Dow Sputters as 5th-Largest Stock Unexpectedly Whiffs on Earnings

Josiah Wilmoth @Y3llowb1ackbird
October 22, 2019 13:36 UTC

The Dow sputtered toward an underwhelming session on Tuesday after the index’s fifth-largest stock whiffed on earnings, punishing investors who sought harbor in its familiar brand name as a defensive play against the trade war and other festering risks.

Dow Flatlines as S&P 500 Grinds Toward Record High

Wall Street’s major indices all traded cautiously as earnings season continued to mature. The Dow Jones Industrial Average ticked 8.28 points or 0.03% higher to 26,835.92.

The Dow traded sideways on Tuesday after its fifth-largest stock reported earnings. | Source: Yahoo Finance

The S&P 500 rose 5.2 points or 0.17% to 3,011.89. The large-cap index now sits within inches of setting a new all-time high above 3,027.98, the mark it set in July.

The Nasdaq outperformed with a 26.60 point or 0.33% advance to 8,189.20.

McDonald’s Earnings Knock the Wind Out of the Dow

Dow futures had nervously pointed to slight gains for much of the pre-market session, but the optimism wavered when fast-food stalwart McDonald’s reported earnings that failed to meet analyst forecasts.

Flashy menu offerings from smaller competitors like Burger King (Impossible Whopper) and Popeyes (new fried chicken sandwich) appear to have eaten into McDonald’s earnings, which came in at $2.11 per share versus a consensus Refinitiv estimate of $2.21.

McDonald’s earnings came in below analyst estimates. | Source: emka74/Shutterstock.com

The increased competition – including viral events like the “chicken sandwich war” between Popeyes and Chic-fil-A – also diminished US same-store sales, which grew just 4.8% vs. 5.2% expected.

However, a 5.9% growth in global same-store sales beat the expected 5.6% bump, allowing investors to find a silver lining despite a further miss in revenue ($5.4 billion vs. $5.5 billion expected).

Along with Coca-Cola, McDonald’s ranks as one of the Dow’s most popular defensive stocks. It’s also the index’s fifth-largest component, holding a 5.31% weighting, as of Monday’s close.

MCD shares fell 3.65% during the morning session.

DJIA Giant Boeing Reports Earnings Tomorrow

The Dow’s most heavily weighted component, Boeing, is expected to report third-quarter earnings before the opening bell on Wednesday. Investors have already braced for a titanic plunge in quarterly profit, as well as a 22% slide in revenue, both byproducts of the 737 Max’s worldwide grounding.

Boeing stock is clinging to narrow gains for 2019, but its well-documented struggles have presented the Dow with major headwinds, which is one reason the S&P 500 is on the brink of setting a new all-time high and the Dow is not.

As the S&P 500 (red) races toward record highs, Boeing stock (black) is weighing on the Dow (blue). | Source: Yahoo Finance

The beleaguered aerospace company has been scrambling to get the 737 Max approved to resume flights but faces enhanced scrutiny following the release of three-year-old messages that raise questions about the firm’s internal culture and commitment to safety standards.

Former US presidential candidate Ralph Nader, whose great-niece died in the second tragic 737 Max crash in March, continues to demand that CEO Dennis Muilenburg and the entire Boeing C-Suite resign.

Nevertheless, United Technologies Chief Financial Officer Akhil Johri said that he expects Boeing – one of its most important customers – to continue producing 42 737 Max planes per month throughout the remaining two months of the year, though it’s not clear whether that will change in 2020.

This article was edited by Sam Bourgi.

Josiah Wilmoth @Y3llowb1ackbird

Josiah is the US Editor at CCN, where he focuses on financial markets. He has written over 2,000 articles since joining CCN in 2014. His work has also been featured on ZeroHedge, Yahoo Finance, and Investing.com. He lives in rural Virginia. Follow him on Twitter @y3llowb1ackbird or email him directly at josiah.wilmoth(at)ccn.com.