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Healthcare Stock Sell-Off Keeps the Dow Jones From Reaching Record Levels

Shares of pharmaceutical giant Merck (NYSE: MRK) fell almost 2% after reporting earnings, joined by Amgen (NASDAQ: AMGN) and Walgreens Boots Alliance in a handful of Dow Jones Industrial Average (DJINDICES: ^DJI) stocks in the red on July 29. Johnson & Johnson joined its fellow healthcare giants, finishing the day roughly flat.

While none of the other Dow Jones stocks gained even 1.5% on the day, the overwhelming number of the index's components being up was enough to drive over 150 points of gains, almost enough for the index to set another record high. The Dow closed at 35,084.53, just below the all-time high set earlier this week.

Today's modest, yet broad, gains are a product of positive sentiment following the release of data by the U.S. federal government that showed the economy is now bigger than it was before the coronavirus pandemic. Despite concerns that the rate of economic growth is slowing, investors are clearly optimistic on U.S. stocks after this news.

Image source: Getty Images.

Merck shares fall after earnings, other healthcare stocks also tumble

Merck reported its second-quarter earnings before the market open today, with revenue up 22% to $11.4 billion beating expectations, while its adjusted $1.31 earnings per share came up short of what Wall Street expected to see. The company also increased its own guidance for full-year revenue slightly, and reported positive results from a number of its biggest-selling drugs.

So why the decline, if the results -- and the guidance -- were pretty solid? One reason is the company's guidance didn't meet up with Wall Street analysts' consensus revenue expectations for the coming quarter.

Joining Merck today was Amgen, with shares down almost 1%, though there's not a clear reason why. The biotech giant did announce an acquisition earlier this week, saying that it would acquire a privately held biotech start-up for $900 million, plus as much as $1.6 billion in potential future milestone payments. The company did announce today that it would report second-quarter results after market close on Aug. 3.

Shares of Walgreens and Johnson & Johnson also fell and were flat, respectively, today; both reported Q2 results earlier this month.

General optimism sends rest of the Dow higher, closing in on another record high

There weren't any barn-burners today; no Dow stock gained more than 1.4%. But almost every other stock in the index moved up today, following the release of data from the U.S. Bureau of Economic Analysis showing GDP increased at an annual rate of 6.5% in the second quarter of the year. This was even better than the 6.3% annualized GDP growth from the first quarter.

Will this high rate of economic growth continue? It's not likely. We have already "lapped" much of the worst period, during the first half of 2020 when many businesses were shuttered and travel was at a standstill. That alone will result in a smaller increase from lows that weren't quite so low in the second half of 2020. Moreover, there's growing data that points to the delta coronavirus variant having some impact on the economy. Case counts and hospitalizations are on the rise, as the highly contagious strain spreads among the unvaccinated. However, it's unlikely to have nearly the impact as prior surges, with hundreds of millions of Americans already vaccinated and healthcare providers better prepared to treat patients today than during prior surges.

Looking ahead, more Dow Stocks are set to report earnings Friday. Tune back in for a closer look.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Jason Hall owns shares of American Express and Amgen. A family member of Jason Hall is employed by Amgen. The Motley Fool recommends Amgen, Intel, and Johnson & Johnson and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.


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