This Stock Scuppered the Dow

The S&P 500 (INDEX: ^GSPC  ) gained 0.4%, with the Dow Jones Industrial Average (INDEX: ^DJI  ) unchanged (up four-hundredths of a percentage point, to be absolutely precise.) The gap in performance between the two indexes largely reflects the difference in weightings assigned to IBM (NYSE: IBM  ) , which represents nearly 12% of the Dow, against less than 2% of the S&P 500. Shares of the tech stalwart fell close to 5% today -- yesterday's after-hours earnings report was poorly received.

The short view: Premium card issuer American Express (NYSE: AXP  ) , which reported its third-quarter results after the bell, came in exactly in line with analysts' expectations, earning $1.09 per share. The world's largest card issuer by purchase volume, American Express is an interesting bellwether for consumer spending habits -- particularly more affluent consumers. Card-member spending grew 8% in the third quarter, but while that is a better result than the one achieved in the second quarter, it falls short of the double-digit growth achieved over the prior nine quarters. That suggests that American Express' affluent clientele's outlook for the economy deteriorated somewhat last quarter, which isn't encouraging.

The long view: Delegates polled at the CFA Institute's Asset Allocation for Private Clients Conference today expect only 7% equity market returns over the next 10 years. In an article published in last Sunday's New York Times, Robert Shiller of Yale said that, based on the market's current valuation, investors should expect annualized gains of just under 4% after inflation (note that assuming inflation in a range of 2% to 3% annually gets us pretty near 7%). In the same article, Jeremy "Stocks for the Long Run" Siegel of the Wharton School says stocks could return 10% to 12% a year over the next several years.

Whom to believe? I'm giving the nod to Shiller and the "wisdom of crowds" here: To justify a 10% to 12% annual return, you need to believe stocks are now significantly undervalued, whereas I tend to think they are, at best, fairly priced. Nevertheless, there are opportunities to earn greater than 7% -- one of The Motley Fool's top analysts believes you can Secure Your Future With 9 Rock-Solid Dividend Stocks. Click here to request your free report.

Alex Dumortier, CFA, has no positions in the stocks mentioned above; you can follow him on Twitter, @longrunreturns. The Motley Fool owns shares of IBM and has options on American Express. Motley Fool newsletter services recommend American Express. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2062771, ~/Articles/ArticleHandler.aspx, 11/29/2014 4:02:26 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement