AT&T and Verizon Gain as Dow Falls 200 Points

Pension benefits helped AT&T and Verizon in 2013, and it's one reason they're not plummeting along with the Dow Jones Industrial Average today.

Jan 23, 2014 at 3:30PM

A surprisingly weak reading of manufacturing activity in China has hit U.S. stock markets hard today. The Dow Jones Industrial Average (DJINDICES:^DJI) has responded by falling 1.15% as of 3:30 p.m. EST, with 25 of 30 components dropping into the red.

The big news was a HSBC/Markit China manufacturing purchasing managers index falling to a six-month low at 49.6. A reading below 50 indicates contraction and this sparked early fears that China's economy won't maintain the robust growth we've seen in the last decade. This is an early reading for January, so the index will be revised before the month's final figures are released.  

Ironically, slower manufacturing in China may be good for U.S. companies which compete with the Asian power in many industries. By contrast, the same U.S. PMI reading was 53.7, indicating expansion in manufacturing here at home. It's possible that manufacturers here are stealing work from China as its labor costs become less of an advantage over the U.S.  

Telecoms buck the trend
Two stocks not experiencing the same fall today are AT&T (NYSE:T) and Verizon Communications (NYSE:VZ), respectively up 0.7% and 1.1%. Yesterday, AT&T said it would see a $7.6 billion noncash benefit from its pensions due to larger than expected gains last year and falling obligation costs. Verizon got a $6 billion benefit from pensions earlier this week due to similar dynamics.  

Pension accounting can be very confusing, but one part of these gains was due to the outstanding market performance last year. The other driver is a change in assumptions of future returns and costs years in the future. AT&T raised its assumed discount rate of future costs to 5%, which lowered the amount of assets it was required to have on hand, resulting in the noncash gain.

The change can be explained with a simple example. Let's say you owe someone $100 in 30 years and want to invest enough to cover that debt. It you assume a 4% annual return then you need to invest $30.83 to have the $100 in 30 years. But if the return you expect is raised to 5%, the amount invested only needs to be $23.14.

Pensions are much more complex than that and require a lot more assumptions, but that's one way to look at how a company can have such a large gain from a pension. These aren't the kind of consistent long-term gains investors are looking for, but it's a one-time event that's still good for the balance sheet. Pension costs have been a drag for corporate America for years, so it's good to see them turn around and be a benefit for these two companies.

3 stocks that can help you retire rich
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Fool contributor Travis Hoium manages an account that owns shares of AT&T; and Verizon Communications. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers