Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
The Dow Jones Industrial Average (DJINDICES:^DJI) is up 105 points, to 16,479, in early afternoon after better-than-expected earnings from former Dow component and megabank Bank of America (NYSE:BAC). The strong results raise the outlook for all other financial stocks that make up a large portion of the Dow. The S&P 500 (SNPINDEX:^GSPC) jumped eight points to 1,846 as of 1:30 p.m. EST.
Bank of America reported fourth-quarter earnings per share of $0.29, better than analyst expectations of $0.26 per share. Revenue came in at $22.3 billion, better than analyst expectations of $21.2 billion. While the bank was hurt by a steep drop in mortgage refinancing, that was more than balanced by a drop in loan losses, as well as a higher net interest margin, the rate at which the bank lends out money. CFO Bruce Thompson added that the bank's balance sheet is at its strongest level in its history. He added: "Capital and liquidity are at record levels, credit losses are at historic lows, our cost savings initiatives are on track and yielding significant savings, and our businesses are seeing good momentum."
Today's Dow leader
Today's Dow leader is Cisco (NASDAQ:CSCO), up 2% to $22.84. Cisco is up with the tech sector overall after Apple announced that its deal with China Mobile will help the company have its best ever quarter in China. Barron's magazine also recently took a closer look at Cisco and believes the stock is good for a 20% return in 2014. You can read more about that here.
The biggest mover of the Dow today, though, is Goldman Sachs (NYSE:GS), up 1.5% to $179.32 The Dow is structured as a price-weighted index, meaning companies with larger stock prices have proportionally larger effects on the index. This differs from the S&P 500, which is a market cap-weighted index in which companies with larger market caps have a proportionally larger impact. The Dow's antiquated methodology leads to things like Goldman having a nine times greater effect on the numbers than Cisco, even though Goldman Sachs is 33% smaller than Cisco in terms of market value. It's for this reason that I recommend investors learn to follow the S&P 500.
Goldman Sachs is rising today on the Bank of America earnings, as they raise the chance that Goldman Sachs' earnings will also be better than expected. Goldman Sachs reports quarterly earnings tomorrow morning before the market opens. Analysts expect earnings per share of $4.21 and revenue of $7.7 billion.
Dan Dzombak can be found on Twitter @DanDzombak or on his Facebook page, DanDzombak. He owns shares of Bank of America and Cisco Systems. The Motley Fool recommends Bank of America, Cisco Systems, and Goldman Sachs. The Motley Fool owns shares of Bank of America. 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.
More from The Motley Fool
It's Been a Wild Week for Cryptocurrencies -- Have They Finally Stabilized?
After a volatile start to the week, the major cryptocurrencies seem to have settled down.
Should You Buy Financial Stocks in 2018?
The financial sector did well last year, and the run may not be over.
Better Buy: Intel Corporation vs. NVIDIA
The two companies are vying for processor dominance.