American Express' Surge Pushes the Dow Higher

The market's kept up its recent momentum today, with the Dow Jones Industrial Average (DJINDICES: ^DJI  ) closing in on another record high after gaining more than 65 points as of 2:30 p.m. EDT. Despite the gain, most stocks on the Dow aren't moving substantially today, but American Express (NYSE: AXP  ) has jumped more than 2.8% to lead the index. Things aren't looking so strong for IBM (NYSE: IBM  ) investors today, as the tech stock has shed 0.8% to fall to the bottom of the Dow. Let's catch up on what you need to know.

American Express poised for a rebound?

Source: Wikimedia Commons

American Express' steep rise comes after Morgan Stanley analyst Betsy Graseck issued a strong statement in favor of the stock. Graseck indicated that the credit card giant is poised to see its earnings and revenue climb as U.S. retail spending rises in the wake of the cold winter. American Express' stock has fallen more than 1% over the last three months, but there's still plenty to like about this pick.

The company stayed on track despite the winter hardships on consumers, with all four of its major operating segments reporting year-over-year revenue increases in the last quarter. In particular, American Express' U.S. card services branch reported noninterest revenue growth of nearly 5% in its most recent quarter. If consumer spending does pick up more strongly in the next quarter, look for this stock to ride higher growth to a turnaround on the market.

IBM's stock, meanwhile, has plunged more than 10% over the past year as investors have soured on disappointing earnings and a concerning growth outlook. Today hasn't helped that picture: Sources told Bloomberg that China is looking at the possibility of removing IBM servers from its banks and other financial institutions in the wake of U.S. spying allegations. While IBM denied any knowledge of the matter in an email statement cited by Bloomberg, Beijing already announced recently that it plans to vet tech companies -- and any serious move to push IBM servers out of Chinese banks could be a huge blow to the company's foreign initiatives.

IBM has struggled in emerging markets. The company's sales in such economies plunged by 11% in its most recent quarter, with Asia-Pacific revenue overall falling 12%. Decreasing demand in China for servers and other hardware equipment has been a big part of that situation, even though the Chinese market only accounts for about 5% of the company's overall sales. Still, the world's second-largest economy holds huge potential for the tech world. and if Beijing grows more aggressive in pushing its domestic tech brands over international rivals, IBM and other growth-starved companies could be in for serious trouble in the near future.

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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.

  • Report this Comment On May 27, 2014, at 2:44 PM, Momintn wrote:

    The first Bloomberg report I read last week was old information about IBM's problems outlined by hedge funds who are short IBM stock. Being short means these hedge funds have sold IBM stock they do not own, they have to pay dividends to the real shareholders quarterly, and cover their short positions by buying IBM stock to return the stock to the shareholders of record. Further reports from Bloomberg Businessweek seem to repeat this anonymous report of banks being told to replace IBM servers with no verification from anywhere else as to the truth of it.

    Chinese factories build components for these IBM servers and the low-end server line is being sold to Lenovo, a Chinese company. Data inside servers is encrypted and is of no use to anyone. IBM was not listed as a vendor who participated in Prism according to Snowden's documents. According to Gartner, IBM is a leader in security. And IBM has recently won the 2014 Global Frost & Sullivan Award for Customer Value Leadership, in recognition of its integration of various mobile security, mobile identity, and access management solutions. As the four leading Chinese banks compete in the global financial industry for accounts, with many of these account owners accessing their accounts from their smartphone, they will not risk their business to replace IBM products without justification.

    Read the Reuters report as it includes all the statements saying that the information from Bloomberg is not true.

    "IBM is not aware of any Chinese government policy recommending against the use of IBM servers within the country's banking industry," said IBM spokesman Ian Colley. "IBM is a trusted partner in China and has been for more than 30 years."

    "A spokesman at the National Development and Reform Commission (China) said the country's top economic planner has not told companies to change their IBM servers, nor received orders from higher levels of the government to do so."

    "Sources at China's "big four" state-owned banks said they had no knowledge of pressure for a technology change, saying any replacement of such systems would not be an easy task.

    "We haven't heard about the order," an official at one of the bank's IT department said, declining to be identified because he was not allowed to speak to the media.

    "There aren't any locally made hardware around that can handle the massive amount of data in the banking industry."

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Dan Carroll

Dan began writing for the Motley Fool in 2012. He is a health care specialist who also follows the defense industry along with tracking the broader U.S. and international markets.

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9/4/2015 4:30 PM
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American Express CAPS Rating: ****
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International Busi… CAPS Rating: ****