Why Chevron Will Move the Dow Tomorrow

Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.

The Dow Jones Industrials (DJINDICES: ^DJI  ) continued its volatile week on Thursday, soaring almost 110 points and regaining a decent part of the ground the average lost yesterday. Yet even as analysts get more comfortable with their view that recent emerging-market troubles won't affect the U.S. economy or the stock market, Chevron (NYSE: CVX  ) will remind investors of the importance of earnings to market sentiment generally, and will provide another look at the energy sector after ExxonMobil's (NYSE: XOM  ) report this morning.

Chevron will announce its results before the bell Friday morning, with investors expecting to see the company's press release at about 8:30 a.m. EST based on the timing of its reporting last quarter. The oil company has scheduled a a conference call for 11 a.m. EST to discuss those results.

For many investors, the most important thing about Chevron earnings will be whether the energy giant can reverse the negative impression that ExxonMobil left earlier today. Exxon suffered a 16% drop in net income in its fourth quarter, with oil and gas production figures falling 1.8% and hurting its upstream segment. Despite widening spreads between domestic and global oil prices, refining profits were cut almost in half as well.

Chevron has already warned that its fourth-quarter results will be problematic, with the company seeing the same general trend toward weaker production, especially in the more-lucrative oil and liquids arena. With both of the nation's biggest oil companies reporting struggles in keeping production levels up, it would take an unusual surprise reversal from Chevron's previous guidance just a few weeks ago to inspire investors.

Perhaps the most interesting aspect of Chevron's performance lately is that its stock is actually within just 3% of setting a new low for the past 12 months, suggesting that investors have already taken all these negatives into account. During past Dow pullbacks, many investors were quick to anticipate future drops, even after stocks had already fallen. Chevron shareholders need to remember that many of the company's challenges have already hurt the stock's price.

With so much already known about its results, the most likely scenario in which Chevron moves the Dow substantially is with a big surprise in one direction or the other. Given the pessimistic outlook the company has already given, Chevron's most likely move is toward the upside.

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