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What Happened in the Stock Market Today

By Jim Crumly – Aug 27, 2019 at 4:57PM

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Philip Morris and Altria confirmed that they're discussing a possible merger, and Costco opened its first store in China.

Without much news on trade or company earnings, the market wavered between gains and losses Tuesday, ultimately ending the session on a down note. The Dow Jones Industrial Average (^DJI -1.71%) and the S&P 500 (^GSPC -1.51%) both lost less than 0.5%. The weakest sectors were financials and energy, while defensive utility stocks edged up.

Today's stock market

Index Percentage Change Point Change
Dow (0.47%) (120.93)
S&P 500 (0.32%) (9.22)

Data source: Yahoo! Finance.

As for individual stocks, tobacco giants Philip Morris International (PM -3.58%) and Altria Group (MO -1.92%) are in talks about a possible merger, and Costco Wholesale (COST -1.40%) attracted a huge crowd when it opened its first store in China.

Man looking at graph with "sell" and "buy" in background.

Image source: Getty Images.

Philip Morris and Altria may be getting back together

Philip Morris and Altria confirmed rumors that the two tobacco companies are in merger talks after having separated 11 years ago, but investors were unimpressed, sending shares of Philip Morris down 7.8% and those of Altria down 4%.

Press releases from the two companies said that the potential combination would be a "merger of equals" formed from an all-stock deal. Observers could only speculate about the specifics of the deal, but Philip Morris is the bigger of the two companies, with a market capitalization of about $112 billion, compared with Altria's valuation of about $84 billion. Altria stock rose at first on the news, but then sank into negative territory.

Both companies have struggled to find growth amid declining tobacco shipments, and both are pursuing smoking alternatives. Altria has invested in Juul Labs, a maker of e-cigarettes, and is getting into marijuana with its investment in Cronos Group. Philip Morris is putting its bets on its IQOS heated-tobacco system.

Costco enters China with a bang

The turmoil in trade relations between China and the U.S. didn't seem to dampen enthusiasm for the opening of the first Costco in the Middle Kingdom, as shoppers jammed the store and elbowed their way to deals, forcing Costco to close the store eight hours earlier than planned. Shares jumped 5%.

The warehouse retailer had widely promoted the opening of the store in Shanghai on social media, and the Chinese public responded, creating a two-hour wait in a traffic jam and a frenzy for the U.S.-branded goods stocked in the warehouse store, which is a bit larger than the company's average. Costco priced its Gold Star membership at about $41.75, and yes, you could buy a hot dog in the food court.

Costco clearly has a large expansion opportunity in China, but don't expect the company to move quickly. On the last conference call, the retailer said it would open its second store in the country a year and a half or more after this first one.

Jim Crumly owns shares of Costco Wholesale. The Motley Fool has the following options: short January 2020 $180 calls on Costco Wholesale and long January 2020 $115 calls on Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Altria Group, Inc. Stock Quote
Altria Group, Inc.
$40.38 (-1.92%) $0.79
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$472.27 (-1.40%) $-6.71
Philip Morris International Inc. Stock Quote
Philip Morris International Inc.
$83.01 (-3.58%) $-3.08
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85

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

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