18 Oct

Boeing and JNJ Drag Dow Lower, End Week in Red

WRITTEN BY Aditya Raghunath

The Dow Jones Industrial Average Index (or DJIA) has lost close to 260 points or 0.95% today. The Boeing Company (BA) fell 6.73% and was the biggest loser in the DJIA (DIA) on October 18.

Boeing accounts for 9.5% of the DJIA. It lost market value after a Reuters report accused the company’s employees of misleading the FAA (Federal Aviation Administration) with regard to flight control systems of the 737 Max.

Boeing’s “misleading” internal messages

Two 737 Max airplanes have crashed in the last year and have since been grounded by many countries. According to this CNBC report, Boeing’s former chief technical pilot Mark Forkner raised concerns over a flight control system also known as MCAS. The investigators for the 737 Max plane crash had cited this faulty system for the accidents.

Now, the personal messages of two Boeing employees have been made public. Forkner has confessed to lying to FAA regulators about the faulty MCAS. How will this news impact investors and management going forward?

The stock is already trading 23% below its 52-week high, and the recent news is scandalous, to say the least. The company was severely affected after 737 Max jets were grounded. These aircraft accounted for 30% of total operating profits and were a cash cow for Boeing.

The leaked messages may very drive the stock significantly lower heading into the last quarter of 2019. They might also result in outrage from Boeing stakeholders and the general population.

Johnson & Johnson stock also down

The other biggest loss for the Dow today was Johnson & Johnson stock (JNJ). The stock also fell over 6% today.

According to this Barron’s report, “The company is recalling tens of thousands of bottles of baby powder after the Food & Drug Administration found trace asbestos contamination in one bottle from a large shipment.”

Besides Boeing and JNJ, what moved the Dow this week?

While the Boeing leak and JNJ recall were the main drivers for the DJIA’s performance today, investors were also worried about China’s economic data. According to another CNBC report, China’s GDP grew 6% in the third quarter of 2019, which is the slowest quarterly growth since 1992.

Analysts expected China’s GDP growth at 6.1% in the September quarter. The report further states that China’s Chief Economist Bo Zhuang expected GDP growth to fall to 5.8% in the December quarter. The trade war has taken a massive toll on China’s exports over the last few quarters.

This news dragged the DJIA down almost 1% on October 18. Tech stocks Cisco, Microsoft, and Intel also fell 0.74%, 1.7%, and 1%, respectively. After the decline today, the Dow Jones shook off its earlier gains to end the week in the red.

Last week, investors were optimistic about trade war talks sending the DJIA and the S&P closer to record highs. The DJIA also gained momentum after a strong start to earnings season when United Health stock rose 8% in a single day. However, on Wednesday, less-than-encouraging retail sales data sent the Dow lower.

Macro indicators and earnings season

The macro indicators remain less than encouraging. We’ve seen that China’s GDP is slowing. And the PMI data from Europe and the US also point to a contraction.

With earnings season set to continue, investors can expect the market to be volatile until the end of October.

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