Dow Drops 35 as Consumer Stocks Prepare for Weather-Battered Earnings Results

At first glance, Wednesday's 35-point pullback by the Dow Jones Industrials (DJINDICES: ^DJI  )   looked like a natural pause after the average soared almost 1.5% on Tuesday. But with the vast majority of stocks already having reported their earnings for the final quarter of 2013, investors are looking to what will come next month from first-quarter 2014 results. As the Federal Reserve confirmed in its Beige Book report today, the bad winter could well have a negative impact on the U.S. economy this quarter, especially among the retail and consumer goods areas and especially in the East Coast areas hardest hit by the weather. That in turn explains some of the skittishness among Dow components Nike (NYSE: NKE  ) , Wal-Mart (NYSE: WMT  ) , and Visa (NYSE: V  ) today.

Nike's 1.5% drop came in the wake of bad news from rival Adidas, which said overnight that poor performance in emerging-market currencies compared to the euro would have a big impact on its earnings and revenue this year. The U.S. dollar has been similarly strong compared to most of those currencies, potentially giving Nike the same exposure in its own financial results. Yet even though Nike's international business plays a huge role in its overall revenue, any sluggishness in U.S. results would also make investors worry about the athletic-apparel giant's future. With Nike set to kick off earnings season later this month because of its unusual fiscal year, investors should get an early sense of how the cold winter has affected its sales.

Meanwhile, Wal-Mart's 0.4% drop provides a better example of how the tough winter could affect already struggling major retailers. After a holiday season that featured huge levels of promotional discounting across the industry, retailers had likely hoped that the first quarter would give them a chance to recover lost ground and retrench in a better economic environment. Yet with moves such as cutting prices on popular iPhone and Galaxy smartphones, Wal-Mart is showing a need to capture more customers even if it means thinner profit margins. Moreover, with higher heating bills having a huge impact on lower-income customers, Wal-Mart could find itself with shoppers who don't have the discretionary income to maintain past spending levels.

A tough retail environment means less spending from shoppers, and given Visa's reliance on transaction volume for its profitability, that's bad news for the credit card giant, whose shares fell 1% today. Even though international market turmoil has also played a role in Visa's share-price movements lately, the company maintains a lot of exposure to the domestic market. With early signs pointing to less spending activity, Visa could well report a poor quarter as well.

The good news for long-term investors, though, is that weather-related phenomena are by their nature temporary. If share prices fall as a result of momentary setbacks, that only sets the stage for rebounds when things return to normal -- and smart investors will grab opportunities on stocks they're interested in for the long haul.

Look beyond the Dow for the best stock in the market
Opportunities to get wealthy from a single investment don't come around often, but they do exist, and our chief technology officer believes he's found one. In this free report, Jeremy Phillips shares the single company that he believes could transform not only your portfolio, but your entire life. To learn the identity of this stock for free and see why Jeremy is putting more than $100,000 of his own money into it, all you have to do is click here now.


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

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: 2865490, ~/Articles/ArticleHandler.aspx, 10/24/2014 2:51:15 PM

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