It seems as though policymakers in Washington are coming close to some sort of agreement to raise the debt ceiling temporarily to help avoid potential default. Pleased by this development, investors and traders on Wall Street went into buy mode, pushing stocks well into positive territory during today’s trading. However, the debt ceiling deal on the table right now only delays a debt ceiling breach for six weeks, which suggests we could be in this mess again by Thanksgiving. And don’t rule out the possibility that certain policymakers will reject the deal altogether, meaning we will be back to square one.
While investors and traders are cheering on a potential debt ceiling deal so far today, don’t forget that we are still in the midst of a partial government shutdown. Even if the shutdown hasn’t directly affected you personally, it does not mean it isn’t being felt by others, especially the thousands of workers who have been furloughed because of the impasse in Washington. Moreover, the longer a government shutdown goes on, the more it could potentially impact various dividend paying companies that have a large portion of their revenues generated through federal contracts. So, just because there seems to be a bit of optimism stemming from the developments out of Washington today, don’t forget there are still hurdles to get over before investors should get too bullish.
Among the stocks rising into positive territory today were: Arch Coal (ACI), after it announced that it will be acquiring Patriot Coal Corp; United Technologies (UTX), after it announced a 10% dividend hike; Fred’s (FRED), following its September sales update; and PVR Partners (PVR), after it was announced that it will be acquired by Regency Energy Partners (RGP).Stocks on the Decline
In negative territory today were shares of: Men’s Wearhouse (MW), retreating a bit after yesterday’s big rally due to Jos. A. Bank M&A talks; Lindsay Corp. (LNN), following disappointing fourth quarter earnings; L Brands (LTD) and Buckle (BKE), due to poor September sales; Quest Diagnostics (DGX), after it issued a disappointing third quarter earnings outlook; and Regency Energy, after it announced the acquisition of PVR Partners.
Also, shares of Chevron (CVX) edged lower today due to a Wall Street analyst downgrade.
Be sure to check the Dividend Daily for all the latest earnings reports, analyst moves, and much more.Avoid Overreacting to Earnings
With earnings season more-or-less upon us, I think it is a good time to remind investors that you should not overreact to a stock’s one-day performance following its earnings report. Sometimes traders will take up positions in certain stocks following their earnings, causing stocks to spike or plummet substantially, and maybe unjustly, depending on if the company misses or beats estimates. When retail investors see these big movements, it might stir up confusing thoughts and emotions that cause you to be unsure of whether to unload a stock or buy more.
In these times, investors need to trust their own instincts when looking over a company’s earnings report. If you see a company is growing revenues substantially and boosting dividend payouts, but just happened to miss some analysts’ estimates for one quarter, then you should continue to hold the stock even if it takes a one-day hit. In fact, it might be a time to add to your position because of the pullback. And the opposite can be true; if a company beats estimates and the stock rises, but the underlying financials are underwhelming, it could be a time to unload a portion of the stock to take profit. But in the end, you should do your best to ignore most short-term volatility, avoid trading around earnings reports, and stay on track with your buy and hold dividend strategy.
Thanks for reading! Be sure to check us out on Twitter @dividenddotcom. We will see you tomorrow.
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