Why the Dow Jones Is Up Triple Digits Today

Better-than-expected retail sales are pushing up Visa and the DJIA.

Apr 14, 2014 at 1:30PM
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Visa (NYSE:V) is leading the Dow Jones Industrial Average (DJINDICES:^DJI) up following a better-than-expected retail sales report for March as well as expectation-beating earnings from Citigroup (NYSE:C), the nation's third-largest bank. As of 1:20 p.m. EDT the Dow is up 129 points, or 0.81%, to 16,156. The S&P 500 (SNPINDEX:^GSPC) is up 0.74% to 1,829.

The market owes much of its buoyancy today to this morning's retail sales report from the Census Bureau:

Report

Period

Result

Previous

Retail sales

March

1.1%

0.7%

Retail sales ex-automobiles

March

0.7%

0.3%

Retail sales grew slowly throughout the winter. Some say this was because the U.S. economy faltered, while others blame the harshest winter in years. In March, retail sales grew 1.1%, beating analyst expectations of 0.8%. That number is even better than it looks, as February retail sales were revised upward from 0.3% growth to 0.7% growth. Year over year, retail sales grew 3.8%.

US Retail Sales Chart

US Retail Sales data by YCharts.

Retail sales excluding automobiles also came in above analyst expectations, notching 0.7% growth versus a forecast of 0.5% growth. Improving retail sales for February and March are a good sign that the U.S. economy is continuing to grow and that the slowdown over the past few months was the result of bad weather, rather than a slowdown in the economy.

Among individual stocks, Visa is leading the Dow higher, up 2.3% because retail sales directly affect the payment processor's results. Visa makes more money as more consumers use its cards during transactions, while the banks that issue its cards assume the risk that consumers won't be able to pay them back for their purchases. Meanwhile, fellow Dow card issuer American Express both processes payments and takes on the credit risk.

Also driving Visa higher is an analyst upgrade by Baird from "neutral" to "outperform." The analyst, which has a $245 price target on the stock, said, "We continue to like the company's long-term growth prospects driven by nice secular tailwinds in the business model, strong FCF generation, a solid balance sheet (~$11/share in cash, no debt), and a pattern of good execution."

The Dow, aside from feeling Visa's considerable positive influence (the stock has the greatest weight in the index due to its high stock price), is benefiting from Citigroup's Street-beating earnings. While not a member of the Dow, Citigroup is the third-largest bank in the U.S., so its results give an indication of the health of the financial sector. Investors may have been overly cautious ahead of Citigroup's earnings, as the bank's Mexican loan fraud has been widely publicized. The bank reported earnings per share of $1.30, handily beating analyst expectations of $1.14 per share. Revenue was down 2% year over year to $20.1 billion but still better than analyst expectations of $19.5 billion.

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Dan Dzombak has no position in any stocks mentioned. The Motley Fool recommends Visa. The Motley Fool owns shares of Citigroup and Visa. 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.

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