S&P 500, Nasdaq Slide as Strength Doesn’t Always Lead to More Strength

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A strong start to the day has since reversed itself with two of the three major indexes in the red midday.

The S&P 500 has dipped 0.2%, to 2833.09, at 12:28 p.m. today, while the Nasdaq Composite has fallen 0.6%, to 7412.27. The Dow Jones Industrial Average, which has gained 35.18 points, or 0.1%, to 26,245.99, is the only benchmark still in positive territory…barely.

That doesn’t change the fact that the S&P 500 is off to its best start to the year since 1987, according to Bespoke Investment Group, and its seventh-best since 1931.

Interestingly, though, a strong start doesn’t guarantee continued strength over the rest of the year. In 1987, the S&P 500 dropped 8.5% after gaining 11.5% through Jan. 23, and finished the year up just 2%. Big gains were also followed by big losses in 1931 and 1934. But of the nine times that the S&P 500 gained 5% or more through Jan. 23, it followed through with more gains six times. “Prior strong starts have typically led to further gains through year end, although there are some major exceptions,” Bespoke’s Paul Hickey writes.

So why the weakness today? As we noted this morning, a combination of a big three-week gain, a close at a 52-week high, and a gap up has often been a sign that short-term weakness is on its way. We noted the one-month and three-month gains in our earlier post, but Sundial Capital Research’s Jason Goepfert also pointed out that the S&P 500 has averaged a 0.6% decline from open to close on the day following such occurrences.

With the S&P 500 now down 0.4% from its open, it certainly fits the pattern.

Abbott Laboratories: Now That’s What We Call an Encore

When a stock posts its best performance in 20 years, what can it do for an encore? If that stock is Abbott Laboratories (ABT), it just keeps heading higher.

Abbott Lab’s stock price rose 49% in 2017, its best performance since 1998, when it rose 50%. But anyone concerned that it was due for a breather needn’t have worried, as its shares gaining ground again this year, helped by the company’s fourth-quarter earnings report, released today.

Abbott said it earned 74 cents a share on revenue that rose 42.3% year over year to $7.59 billion. Analysts were looking for earnings of 73 cents on revenue of $7.38 billion. Guidance wasn’t too shabby, either: For the first quarter, Abbott expects to earn between 57 cents and 59 cents a share, above the 56-cent consensus estimate. For the full year, it sees earnings of $2.80 to $2.90 a share, with a midpoint also above the $2.83 analysts are expecting.

The earnings provide evidence that Abbott’s operational momentum is set to continue over the next year, write Cowen’s Joshua Jennings and Harris Iqbal, who reiterated their Outperform rating and $68 price target on the stock today. They also believe that Abbott’s impressive sales should be enough to quell investor worries that the stock could level off after a big rally in 2017.

It sure looks that way. Abbott Laboratories has gained 3.7%, to $61.39, at 11:58 a.m. today, putting its stock up 7.7% so far this year. —Teresa Rivas

3M Gets Some Love Before Earnings

3M (MMM) hasn’t even released its earnings yet, but Hilliard Lyons analyst Spencer Joyce is already upgrading the stock.

Joyce raised his rating on the stock to Buy from Neutral today, with a $285 price target, arguing that it stands to be a beneficiary of lower corporate taxes. As a result, he raised his 2018 earnings-per-share estimate to $10.44 and his 2018 EPS estimate to $11.19, both higher than current Street estimates of $9.87 and $10.80, respectively.

Sure, 3M isn’t a bargain after its rally in recent years, but Joyce claims its valuation is still reasonable and, more importantly, “sustainable.” He also likes the fact that other analysts aren’t particularly bullish on 3M. Not including his own rating, just four rate it positively, while seven rate it Neutral and three have some variant of Sell. “Although the buy-side is likely anticipating some of our comments…we like upgrading into current sell-side positioning,” Joyce writes.

Investors seem a little reluctant to embrace his view. Shares of 3M have risen just 0.6%, to $247.91, at 12:00 p.m. today. It’s scheduled to release its earnings tomorrow morning. —T.R.

Amazon’s Still Eyeing Pharmacy

Talk of Amazon.com (AMZN) moving into the pharmacy business has quieted recently, but that doesn’t mean it won’t happen. In fact, Leerink’s Ana Gupte and John Sourbeer  warn that it’s just a matter of time.

After hosting a call with a former member of Jeff Bezos’  senior executive team, Gupte and Sourbeer believe that Amazon “is almost certainly” planning to enter the prescription drug market. Don’t expect a repeat of the Whole Foods acquisition, however, as the analysts expect an “organic…measured” entry into the space.

Gupte and Sourbeer contend that customer experience will be the key to Amazon’s entry into prescription drugs, as it tries to offer better online fulfillment and shipping. As such, they expect Amazon to offer all generics and brands, rather than compromising on selection, and it will likely offer the lowest prices, perhaps using loss leaders or subsidized pricing to woo consumers.

With the chances of an Amazon takeover lower, Gupte and Sourbeer write that it “appears to offer a breather” to the drug supply chain, including stocks like Express Scripts (ESRX) or Walgreens Boots Alliance (WBA). They highlight UnitedHealth (UNH) as “well positioned” to partner with Amazon via its Optum Rx, but they expect nonexclusive contracts.

Amazon has fallen 0.3%, to $1,358.34, at 12:07 p.m. today, while Express Scripts has ticked up 0.1%, to $81.21, Walgreens has advanced 0.6%, to $77.47, and UnitedHealth has risen 0.5%, to $246.32. The Health Care Select Sector SPDR ETF (XLV) is up 0.3%, to $88.85. —T.R.

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