The stock market is always on edge, waiting for something to happen.
After the Malaysia Airlines passenger plane was shot down Thursday, the Dow Jones industrial average plummeted 161 points midday. The market recovered by noon Friday, with the Dow up more than 100 points – demonstrating the equity market’s resilience.
While the market is responding to geopolitical concerns, earnings reports will drive the averages in the near term, and investors should not be surprised to see a 5 percent spurt in either direction.
Stocks have remained positive, reaching numerous all-time records during the first six months of 2014. Takeover activity has surged to six-year highs, with companies relying on their elevated share prices to finance the deals.
The primary trend is still bullish, with the Dow industrials and transports hitting all-time highs in mid-July. Historically, stocks have declined by 5 percent or more at least three times a year on average. One of those market pullbacks has been 10 percent or greater.
The stock market is exhibiting some odd characteristics of the late stages of a bull market, and that may be a good reason to sell. Evaluate your portfolio and bolster your emotions, preparing to use short-term pullbacks to add quality companies at lower prices and continuing to maintain a nearly fully invested portfolio.
Two Town Crier “50” stocks are in the news.
• Northern Trust Corp. (NTRS; $65.43) reported second-quarter net income last week with a focus on financial performance improvements and investing in attractive growth opportunities.
Income for a diluted common share totaled 75 cents, compared with 78 cents in the second quarter of 2013 and 75 cents in the first quarter of 2014. Net income dropped to $181.9 million, from $191.1 million in the prior quarter. The company has missed estimates in the trailing four quarters.
Northern Trust, founded in 1889, is based in Chicago. With numerous branches throughout the world, the company provides investment management, asset and fund administration and fiduciary services for corporations.
Northern Trust had a branch in Los Altos on Second Street but recently relocated to smaller offices at 2500 Sand Hill Road in Menlo Park.
Analysts recommend a hold for Northern Trusts stock – with a smattering of deeming it an underperform. The median target price is $64, with a high of $71. The dividend yield is 2.1 percent.
• Microsoft Corp. (MSFT; $45.13) confirmed that it would slash up to 18,000 jobs over the next year in an effort to streamline operations under new CEO Satya Nadella. After the announcement, shares of Microsoft climbed 3.3 percent to $45.55.
Not all layoffs are a result of the Nokia Corp. merger. Nadella will eliminate testing engineers and change the product manager-engineering role. The current biggest hit is in the Windows group, specifically Microsoft’s Operating Systems Division.
In a statement Friday, Microsoft revealed that it plans to cut approximately 12,500 of the professional and factory positions as part of the $7.2 billion acquisition of Nokia’s handset business.
In another move, Microsoft plans to close its two-year old Xbox Entertainment Studios in the coming months, though Xbox will continue to support and deliver interactive sports and TV content.
The least affected by the layoffs are the company’s cloud and enterprise divisions.
Since former CEO Steve Ballmer’s retirement and Nadella’s ascension, the stock’s upgrade and downgrade history has remained an upgrade, with analysts recommending a buy or outperform status.
The high target price for Microsoft stock is $50, with a 2.7 percent dividend yield at $1.12 a share.
Clyde Noel is a Los Altos Hills resident and longtime investor in stocks. Disclosure: He owns shares in both Northern Trust and Microsoft.