Stock Rally: Will Third Time Be A Charm For Dow?

Mobile Usage Hurts Google

The easiest way for investors to become more decisive in the financial markets is for earnings to justify higher stock prices. While after-hours quotes should always be taken with a grain of salt, Google was down 2.48% after releasing some disappointing figures late Wednesday. From Bloomberg:

Google Inc.’s costs are rising as the search provider finds it harder to keep up with a broad shift to advertising on mobile phones, with sales falling short of estimates. Google’s audience is steadily migrating to smartphones, where the company gets less money for marketing spots than on desktops and tablets.

Dow Making 3rd Attempt At 16,580

After pointing out a Dow Theory non-confirmation that was in place on April 4, the S&P 500 dropped over 50 points. Has the Dow posted a new closing high during this week’s rally? Not yet. The inability to print a new high is indicative of investor doubt about earnings, the economy, and central bank policy. Janet Yellen’s remarks helped boost stocks Wednesday, but those moves can be “one day wonders”. We will see if the gains can continue on Thursday.

IBM Not Helping The New High Cause

IBM carries the third highest weight (7.7%) of any stock in the Dow Jones Industrial Average. Therefore, the reaction to Wednesday’s earnings will impact the Dow Thursday. The early reaction was not favorable for Big Blue. IBM was down over 4% in the after-hours session on revenue concerns. From MarketWatch:

Revenue slipped to $22.48 billion, below the $22.91 billion projected by analysts polled by Thomson Reuters. It was the eighth straight quarter IBM has reported weaker revenue from year-earlier levels. Though the computing and tech giant remains a key provider of computer hardware, software and services to big corporations and governments around the world, IBM is struggling to respond to technological advances such as cloud computing, which allows customers to rent computing power and software over the Internet. Slowing demand in emerging markets, especially China, is also posing a challenge for Big Blue.

Investment Implications

Janet Yellen’s stock-friendly comments helped spark a strong day in stocks Wednesday. Given the schizophrenic nature of the shifts between risk-on and risk-off in recent weeks, we prefer to see if stock gains can hold into the holiday weekend before considering any adjustments. You would think with stocks gaining ground Monday, Tuesday, and Wednesday, bonds would be getting killed. The long-term Treasury ETF (TLT) is up 0.49% this week, which indicates some ongoing economic skepticism. Both our stock (SPY) and bond positions are in the black for the week. We will see how the stock market handles the disappointing reports from Google and IBM.