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It was another solid day for stocks as the Dow (DJINDICES: ^DJI ) and the broader S&P 500 Index (SNPINDEX: ^GSPC ) gained 0.4% and 0.3%, respectively. Both indexes closed at five-year highs. Today marks the third consecutive week of stock market gains. Meanwhile, the VIX Index (VOLATILITYINDICES: ^VIX ) fell 8.2% to close at 12.46, its lowest closing value since April 2007. The VIX, which is derived from option prices on the S&P 500, is a measure of investors' expectations for stock market volatility over the next 30 days. (For some more thoughts on how to put current VIX values in context, please read Stocks: Back to the "Old Normal?")
Intel: A cyclical stock faces a secular shift
Chip maker Intel (NASDAQ: INTC ) was the worst-performing Dow component, losing 6.3%, on the back of its Thursday afternoon fourth-quarter earnings release. Earnings per share of $0.48 exceeded Wall Street's $0.45 consensus forecast, revenues of $13.5 billion were in line with expectations. So why did investors take the shares down?
Trying to read the mind of the market is a thankless, often futile, task, but there is one putative explanation: Investors are coming to terms with the fact that Intel's future earnings are not subject only to demand cyclicality, but they are also heavily dependent on the way in which the company manages the secular shift from PCs to smartphones and tablets. That means there is greater uncertainty associated with those cash flows, thus justifying a higher discount factor and, ultimately, a lower stock price.
The second-worst performing Dow stock today was payment card issuer American Express (NYSE: AXP ) (-1.6%), which also released its fourth-quarter results on Thursday afternoon. Earnings per share of $1.09 (ex-items) and revenues of $8.1 billion were in line with analyst expectations. Part (or possibly all) of AmEx's share-price decline may have been sympathy for a much larger loss in the shares of Capital One Financial (-7.2%), which reported results that fell well short of the consensus on Thursday.
Enjoy your long weekend!
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