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What Happened in the Stock Market Today

By Jim Crumly - Dec 15, 2017 at 4:13PM

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On a day the major benchmarks set records, Costco reported solid earnings, and shares of Oracle fell following weak guidance.

Stocks moved strongly higher Friday on rising expectations that the Republican tax bill will pass. The Dow Jones Industrial Average (^DJI 1.05%) and the S&P 500 (^GSPC 1.05%) closed at record highs.

Today's stock market

Index Percentage Change Point Change
Dow 0.58% 143.08
S&P 500 0.90% 23.80

Data source: Yahoo! Finance.

Investors bid up stocks that would benefit the most from lower tax rates. Retailers tend to pay high taxes, and the SPDR S&P Retail ETF (XRT 0.98%) rose 1.5%. The banking sector also outperformed; the SPDR S&P Bank ETF (KBE 1.69%) gained 1.8%.

As for individual stocks, shares of Costco Wholesale (COST 1.35%) rose after the retailer reported a solid quarter, and Oracle (ORCL 1.43%) stumbled following surprisingly weak guidance.

Rising arrow superimposed on stock graphs.

Image source: Getty Images.

Costco's sales and profit gains

Retailer Costco reported results for the first quarter of fiscal 2018 that beat expectations, and investors boosted the stock price 3.3%. Revenue for the 12 weeks ended Nov. 26 grew 13.3% to $31.12 billion, and earnings per share rose 16.9% to $1.45. Adjusting for a one-time tax benefit, EPS came in at $1.36. Analysts had been expecting earnings of $1.34 per share. 

Comparable sales grew a strong 10.5%, or 7.9% excluding gas inflation and currency effects. Comps in the U.S. grew 8.7% excluding gas inflation and currency, with 1.5 percentage points of that growth resulting from Thanksgiving weekend falling in the first quarter this year. Membership fees increased 9.8%, with over a third of the growth coming from fee increases. E-commerce sales grew over 40% and came to $1.3 billion in the quarter. 

Costco seems to be hitting on all cylinders lately. Earlier this year, investors drove the stock price down over 15% on worry that the warehouse giant would be hurt along with other brick-and-mortar retailers as online buying grew, but sales growth numbers have looked very good the past two quarters. Costco members have continued to be loyal despite the membership fee increase in June, with the U.S. renewal rate holding steady at 90%.

The market is giving the company credit for good execution, with the stock up 29% from its low this summer.

Oracle's disappointing guidance

Software company Oracle reported expectation-beating results yesterday, but the market took the stock down 3.8% on fear that growth of the company's cloud business is slowing. Revenue for fiscal Q2 was up 6% to $9.63 billion and non-GAAP EPS grew 14% to $0.70. Analysts were expecting per-share earnings of $0.68 on sales of $9.57 billion. 

Oracle's closely watched cloud business delivered the company's growth, increasing 43% in constant currency to $1.52 billion, or 16% of total revenue. The company's legacy on-premise software grew 1% to $6.31 billion, hardware sales fell 9%, and service revenue was flat.

What caught Wall Street's attention was guidance for Q3, given in the conference call. Cloud revenue is forecast to grow 21% to 25%, about half this quarter's rate. The guidance is for total revenue growth of 2% to 4% and non-GAAP EPS of $0.68 to $0.70, both below analyst expectations. 

CEO Safra Catz said in the press release, "Our success in the quarter was based on the increasing scale and the gathering momentum in our cloud business. I expect the business to continue to grow and strengthen over the coming quarters."

The company talked up the upcoming release of its artificial intelligence-powered automated database, and again touted lower costs for running its database in thr cloud compared with Amazon Web Services. Oracle execs like to talk up the company's accomplishments in conference calls, but investors were only hearing the weak guidance today.

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Stocks Mentioned

Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
COST
$485.76 (1.35%) $6.48
Oracle Corporation Stock Quote
Oracle Corporation
ORCL
$70.87 (1.43%) $1.00
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
^DJI
$31,097.26 (1.05%) $321.83
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
^GSPC
$3,825.33 (1.05%) $39.95
SPDR Series Trust - SPDR S&P Retail ETF Stock Quote
SPDR Series Trust - SPDR S&P Retail ETF
XRT
$58.73 (0.98%) $0.57
SPDR Series Trust - SPDR S&P Bank ETF Stock Quote
SPDR Series Trust - SPDR S&P Bank ETF
KBE
$44.62 (1.69%) $0.74

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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