Reaching the midway point in the week the Dow Jones Industrial Average rallied higher than 23,000, mostly on the heels of a 9 percent surge from IBM who seems to be hinting at quite a notable bit of revenue growth.
Drexel Hamilton analyst Brian White explains, “IBM turned in a solid quarter last night and we continue to believe the company will emerge from this transition a much stronger IT organization. Moreover, IBM’s 4.1% dividend yield and modest valuation should attract more value investors.”
It has been only about 76 days since the Dow traded above 22,000; so things look to be improving. Still, Cornerstone Financial Partners managing partner Jeff Carbone comments, “Ultimately, this is just a psychological factor, [but] what it does is bring up the question of how much higher can we go?”
He goes on to say, “All the economic data suggests we have more room to the upside. I wouldn’t be surprised if we got to 24,000 by year-end,” especially if we get tax reform.”
Looking more closely at the data, IBM posted a per share earnings adjusted of $3.30 on revenue of $19.15 billion, just after the close of day on Tuesday. Reuters, then, polled analysts to find they expect the company will report slightly lower sales and per share earnings of $3.28 on $18.6 billion.
So far, this earnings season has hit the ground running. Data shows that more than 80 percent of companies reported beating on their bottom line projections. Also, 73 percent reported topping their sales estimates.
Indeed, The Earnings Scout CEO Nick Riach notes, “The good news is the number of companies currently beating estimates, and the margin by which they are doing so, is running above what these same 52 companies have recorded, on average, over the past three years and their top-line revenue growth has accelerated more.”
But, he backtracks, “The bad news is the rate of 3Q 2017 vs. 3Q 2016 earnings growth has slowed from last quarter, but is still running well above trend.”
But while equities seem to be on an upward climb, Treasury Secretary Steve Mnuchin warns that the stock market could see a big drop if Congress is not able to pass tax reform.
He comments, “There is no question that the rally in the stock market has baked into it reasonably high expectations of us getting tax cuts and tax reform done.”