How Earnings Moved the Dow Last Week

When you look at the week as a whole for the Dow Jones Industrials (^DJI -0.98%), you might figure that an overall gain of 15 points suggests that it was a quiet week. Yet with two big up days and the worst decline in four months on Friday, the Dow's been anything but quiet.

Earnings are largely to blame. Let's review the Dow companies that reported earnings to see how they contributed to the Dow's moves throughout the week.

Source: Yahoo! Finance. Earnings in some cases are adjusted to exclude extraordinary items.

It's interesting to see how the actual stock-price moves compare with the amount of attention these earnings releases got during the week. Most notably, both Intel and Microsoft inspired a lot of discussion about the changing nature of the technology industry away from PC-driven growth toward mobile devices, in which both companies have lagged behind their major competitors. Yet when you add up the impact of their earnings reports and collateral damage from other companies in the sector on their stocks, it doesn't look all that big.

By contrast, IBM's share-price losses are significant, precisely because they went beyond the PC slowdown theme. IBM has prided itself on going beyond its historical PC business to capture higher-margin business in IT services as well as the fast-growing server market. Yet what many investors noted most was that despite substantial investment in emerging markets, results there weren't as strong as many had hoped. At the same time, currency impacts also hit the company hard, and at least during the first few weeks of the quarter, the dollar's advance against the euro has come to an abrupt halt.

McDonald's faced many of the same concerns as IBM, with the foreign exchange markets wreaking havoc on its earnings. What's scarier about McDonald's report is that as low as the company's same-store sales were in the third quarter, early indications are that October sales could end up negative.

On the other side of the coin, there was some good news on the earnings front. Travelers was due for a break from last year's disaster-prone third quarter, and the insurance company definitely got it. With catastrophic losses down 85% from the year-ago quarter, the company was able to double its profit. More encouragingly, bad loss experience allowed Travelers to increase its insurance rates, boosting premium income and boding well for the future.

The other major good-news story was Johnson & Johnson. As Fool contributor John Maxfield observed in his post-earnings take on J&J, the company's acquisition of Swiss medical-device maker Synthes has already started paying dividends. Despite weakness in J&J's consumer products division resulting largely from drops in baby and women's health products, pharmaceutical sales were strong, and J&J was able to overcome the same currency headwinds that held many other companies' earnings back.

Lessons learned
One key takeaway from this week's slate of earnings is that getting even the slightest bit of longer-term perspective is essential to evaluating the true impact of a quarterly report on a stock. For stocks like McDonald's, Microsoft, and GE that reported late in the week, studying their share-price moves in the first few sessions next week will be useful to seeing where investors have landed after having time to digest the full implications of the reports.

The other thing to keep in mind with these results is that with many looking at this quarter's results as a potential inflection point for corporate earnings overall, investors are scrutinizing every miss very closely and are being merciless even in cases where a company largely meets or beats expectations. When a single misstep can cause shares to drop substantially, you have to be more careful than ever in evaluating the stocks you own or are considering as future investments.