Stock Market Today: Stocks Rise Despite Rate Concerns, Mixed Earnings
Johnson & Johnson, Lockheed Martin Q1 reports underwhelm; Netflix severely disappoints after the bell with a Q1 subscriber loss.
The major indexes traded well into the green Tuesday, and they did so while flying into a couple of headwinds.
Rising interest rates, which have helped to keep stocks grounded of late, continued their 2022 climb, with the 10-year Treasury reaching 2.948% today as it marches toward a 3% threshold last crossed in late 2018.
Meanwhile, the corporate earnings calendar was largely a mixed affair.
Johnson & Johnson (JNJ, +3.1%) beat first-quarter earnings expectations but missed on revenues and lowered its full-year 2022 sales and profit forecasts. It did, however, announce its 60th consecutive annual dividend hike – a 6.6% bump to $1.13 per share quarterly – to extend its membership in the Dividend Aristocrats.
Defense contractor Lockheed Martin (LMT, -1.6%) sagged after delivering a bottom-line beat but missing both on Q1 revenues and its full-year 2022 sales outlook.
Insurer Travelers (TRV, -4.9%) reported a better-than-expected 48% jump in profits thanks to lower catastrophe losses, though it did suffer a decline in its ratio of claims and related costs to premiums collected.
Also Tuesday, fresh data showed that housing permits rose 0.4% month-over-month in March to 1.873 million annualized, while housings starts were up 0.3% to 1.793 million units annualized.
"Housing starts rose solidly in March; residential construction added to real GDP growth in the first quarter," says Bill Adams, chief economist for Comerica Bank. But he adds that supply chain issues are a huge problem for housing. "The backlog of houses that are permitted or started but not completed is the biggest since the 1970s."
The Nasdaq Composite advanced 2.2% to 13,619, while the S&P 500 (+1.6% to 4,462) and Dow Jones Industrial Average (+1.5% to 34,911) also finished with substantial gains.
After the closing bell, Netflix (NFLX) reported its first quarterly subscriber decline in more than a decade. Shares plunged by 23% in early after-hours trading as Netflix said it suffered a Q1 loss of 200,000 subs, which kept revenues of $7.78 billion below analyst expectations. That overshadowed an easy earnings beat of $3.53 per share vs. estimates of $2.89.
Other news in the stock market today:
- The small-cap Russell 2000 continued to bounce back and forth across the 2,000 level, gaining 2.0% to 2,030.
- U.S. crude futures plummeted 5.2% to end at $102.56 per barrel, weighed on by a strengthening U.S. dollar and worries over slowing Chinese demand.
- A stronger dollar pressured gold futures too, ending the day down 1.4% at 1,959.00 an ounce.
- Bitcoin recovered another 1.4% to $41,349.59. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.
- Hasbro (HAS) advanced 5.2% after the toymaker reported revenue of 1.16 billion for its first quarter – in line with what analysts were expecting – and raised its 2022 revenue forecast, now expecting sales to grow in the mid-single digits this year compared to previous guidance for low-single-digit growth. This helped offset a bottom-line miss, with HAS reporting earnings of 57 cents per share versus the consensus estimate for 62 cents per share. "The company saw 76% sales growth in entertainment as the division benefitted from resumed productions and deliveries and 32% sales growth in digital gaming as they see continued momentum in the space," says CFRA Research analyst Zachary Warring (Buy). "We believe HAS will outperform as its entertainment and digital segments drive margins and sales higher."
Real Estate With Rising Payouts
Having itself a day was equity real estate (+2.1%), a sector that so far delivered a middling 2022.
Helping push it higher was Prologis (PLD, +4.0%), a logistics-focused real estate investment trust (REIT) that reported Street-beating earnings and raised its full-year guidance amid "record demand" thanks to supply-chain issues.
Also moving the sector was American Campus Communities (ACC), which spiked 12.5% after The Wall Street Journal reported asset management firm Blackstone (BX, +4.9%) will buy the student housing developer in a $12.8 billion deal that includes debt.
"The premium to Monday's close [for ACC stock] is ~15%," says Piper Sandler analyst Alexander Goldfarb. "While we certainly were not expecting this deal, it doesn't totally surprise given the Street has long valued the company below net asset value versus the ebullient private market that clearly showed the demand for student housing."
So far in 2022, rising rates have held back REITs, which as a sector are off a little more than 4% year-to-date. But a team of Janus Henderson portfolio chiefs believes any future rate headwinds should be largely limited.
"Should bond yields and interest rates move significantly higher, this could impact property capital values," the portfolio managers say. "However, most REITs have been very proactive in recent years in extending and fixing their debt book, which should reduce their exposure to short-term rate rises."
Remember: Real estate investment trusts are largely appreciated by the income-investing crowd because their mandate to deliver at least 90% of taxable earnings back into the hands of investors typically translates into better-than-normal yields.
But sweetening the pot even more are those REITs that can muster exceptional dividend growth as well. We've recently explored seven real estate plays that have reliably raised payouts in previous years and have delivered double-digit growth of late.