Why IBM and American Express Will Move the Dow Tomorrow

The two Dow components will report their earnings after the bell Wednesday.

Apr 16, 2014 at 12:30PM
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On Wednesday, the Dow Jones Industrials (DJINDICES:^DJI) hung onto their upward momentum from Tuesday's session, picking up more than 124 points by 12:30 p.m. EDT. So far, the overall mood surrounding earnings season has been generally positive, and this afternoon IBM (NYSE:IBM) and American Express (NYSE:AXP) will take their turns in giving investors their latest results and their reads on the future. What they say will have important implications for the tech and financial sectors, as well as for the broader market.

Both IBM and American Express will release their earnings after the market closes, with the companies both historically issuing their respective press releases just a few minutes after 4 p.m. EDT. Following their releases, each company will have a press conference, with IBM's scheduled to start at 4:30 p.m. EDT and American Express setting its webcast for 5 p.m. EDT.

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IBM investors are anxiously awaiting the tech giant's quarterly report, anticipating declines in both earnings and revenue. An earnings decline would be fairly unusual for IBM, which has done a good job of using share buybacks to boost earnings per share toward its long-established $20 target for 2015. But the main concern for IBM is that revenue has fallen substantially for a while now, with poor performance in the hardware sector weighing on the company's overall sales. Still, proponents of CEO Ginni Rometty's long-term strategic vision argue that falling revenue is fine as long as it comes via shifting from low-margin hardware sales toward higher-margin services-related revenue that can produce a bigger impact on the bottom line. IBM's recent move to sell part of its server business, along with a host of growth initiatives, will hopefully produce the results that shareholders want to see.

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Meanwhile, American Express has the tough task of outpacing its card-network competitors, which have extremely high growth rates. Yet to its credit, American Express maximizes its profit opportunity by retaining a closed-loop model whereby it issues its own cards and establishes its own merchant network. Although the financial crisis showed that even American Express is vulnerable to severe downturns, the company's emphasis on higher-end customers reduces its credit risk compared to lower-end card issuers. With the explosion in interest in mobile-payment systems, AmEx's work to secure a spot in the mobile revolution will hopefully help produce more growth for the card giant.

IBM and American Express aren't the first companies in their respective sectors to announce quarterly results this season, but their insights will give investors who follow the Dow Jones Industrials vital information they can use to develop a more complete picture of their sectors and the economy as a whole. If the two companies offer surprises in either direction, you can expect the Dow Jones Industrials to respond on Thursday.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends American Express. The Motley Fool owns shares of International Business Machines. 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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