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What Happened in the Stock Market Today

By Jim Crumly - Aug 14, 2018 at 5:01PM

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On a day stocks rose, Home Depot reported a good quarter and Switch disappointed investors.

Stocks moved higher Tuesday as concerns over Turkey eased and investors focused on earnings. The Dow Jones Industrial Average (^DJI 0.03%) added over 100 points and the S&P 500 (^GSPC 0.01%) had a substantial gain as well.

Today's stock market

Index Percentage Change Point Change
Dow 0.45% 112.22
S&P 500 0.64% 18.03

Data source: Yahoo! Finance.

Retail had a good session, with the SPDR S&P Retail ETF (XRT -2.17%) jumping 2.3%. Bank stocks also rose as long-term interest rates moved up; the SPDR S&P Bank ETF (KBE 0.00%) added 1.3%. 

As for individual stocks, Home Depot (HD -0.20%) reported a strong quarter and Switch (SWCH -0.30%) announced disappointing earnings and gave a weak outlook.

Hand pointing to rising stock graph.

Image source: Getty Images.

Sales at Home Depot rebound

Home Depot reported second-quarter results that exceeded expectations and raised its outlook for the year, but the market seemed uncertain about how to take the news, and the stock closed 0.5% lower after seesawing up and down during the day. Sales increased 8.4% to $30.5 billion and earnings per share grew 35.6% to $3.05. Analysts were expecting EPS of $2.84 on sales of $30.0 billion. 

Sales bounced back from a weak first quarter that was blamed on a cold April that delayed garden spending. Comparable-store sales increased 8.1% in the U.S. and 8% overall, up from a 3.9% gain in comps in the U.S. last quarter. Lumber, indoor garden, outdoor garden, and electrical all posted double-digit comparable-sales gains. Perhaps causing some concern among investors was the fact that the spike in demand in the early part of the quarter didn't continue. Comparable-store sales in May were up 11%, followed by 7.5% in June and 5.7% in July.

Looking forward, Home Depot raised its sales growth guidance for the full year to 7% from 6.7% and boosted its 2018 EPS outlook from $9.31 to $9.42.

The results were good and Home Depot management is upbeat about the future, but investors are wary about the housing market, and that weighed on the stock today.

Switch results a turn-off to investors

Shares of Switch plunged 22.4% after the data center infrastructure company announced disappointing earnings and lowered guidance for the year. Revenue grew 11% to $102.2 million, but earnings per share fell to $0.02 from $0.07 in the period a year earlier, while analysts were expecting $0.04 per share. Switch operates huge data centers powered by 100% renewable energy and rents out cloud service infrastructure on a contractual basis.

Operating income fell 33% to $15.8 million, reflecting the impact of $8.2 million in expense related to equity compensation, $4.0 million of additional depreciation from assets recently placed in service, and a $2.8 million increase in labor costs from new hires. Net income dropped 37% to $9.5 million. On a positive note, the company signed $165 million in new contracts in Q2, a 22% increase over signings in the previous quarter.

Switch lowered full-year revenue guidance 5.8% at the midpoint to a range of $405 million to $408 million. The company said on the conference call that the sales cycle for enterprise hybrid cloud projects is turning out to be longer than expected, taking nine to 12 months to close and then taking several years to complete the transition, delaying Switch's revenue.

Investors seem to be losing patience with Switch, which has turned in three disappointing quarters since going public last October, with shares now selling for about half the closing price on the first day of trading.

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Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$287.19 (-0.20%) $0.57
Switch, Inc. Stock Quote
Switch, Inc.
$33.25 (-0.30%) $0.10
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$31,261.90 (0.03%) $8.77
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,901.36 (0.01%) $0.57
SPDR Series Trust - SPDR S&P Retail ETF Stock Quote
SPDR Series Trust - SPDR S&P Retail ETF
$61.33 (-2.17%) $-1.36
SPDR Series Trust - SPDR S&P Bank ETF Stock Quote
SPDR Series Trust - SPDR S&P Bank ETF
$45.92 (0.00%) $0.00

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

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