what happened
As the trading day goes on, the stock markets just keep going up, with S&P 500 gaining a full percentage point by 12:35pm ET.
Blue chip stocks are proving to be some of the biggest beneficiaries of today’s stock market rally, with the aerospace giant Boeing (BA 3.24%) soaring 2.9% higher, automotive powerhouse Ford Motor Company (F 2.80%) gaining 4.3%, and bellwether cruise shares Carnival (CCL 4.87%) doing the best of all — up to 4.7%.
And what
Ford’s share price surge — while not the biggest of the three — may be the easiest to explain and the one with the most logic behind it. This morning, Ford rival General Motors beat past expectations in its third-quarter earnings report, earning $2.25 per share where Wall Street was calling for just $1.88. GM’s sales were up 56% year-over-year and profits were up 39%. GM also doubled its forecast that it could earn as much as $7.50 a share this year and produce non-auto cash flow of up to $9 billion.
Investors are probably betting that if the auto market was so good for GM, then it might be good enough for Ford. And with Ford scheduled to report its earnings tomorrow, investors may rush to buy ahead of the good news.
At Boeing, by contrast, the biggest news of the day is that the company has promoted Steve Parker, head of the company’s bomber and fighter jet programs, to take over as Chief Operating Officer of all of Boeing Defense, Space and Security (BDS ). division. Larger than Boeing’s commercial airplane division and profitable where the commercial side is losing money, BDS is crucial to Boeing’s fortunes. Reuters reports that Parker’s job will be to “help turn around loss-making programs” and maximize profits there while Commercial Airplanes is still finding its footing.
Meanwhile, there really doesn’t seem to be any big news at the carnival today.
Now what
Helping to lift all three of these giant businesses today is the macroeconomic news that bond rates are falling, with yields on the 10-year Treasury note falling 15 basis points to just over 4%.
Reporting on the move, CNBC quoted analysts as saying that professional investors are “doubling down on expectations for an easier Fed,” meaning there is growing expectation that the Federal Reserve may not raise interest rates another 0.75% when to meet next week. With the economy slowing and the housing market suffering from higher mortgage rates, experts now predict there is about a 30% chance the Fed will raise rates by just 0.5% when it announces its next hike next Wednesday.
Why would this be good news for Ford, Boeing and Carnival? All three of these big businesses carry a lot of debt — more than $35 billion for Carnival, more than $57 billion for Boeing, and $130 billion plus for Ford (mostly in the finance sector). As such, all three businesses are particularly vulnerable to rising interest rates — because it directly results in higher interest expenses they have to pay, thereby reducing profits.
Now, which of these three stocks offers the best chance to benefit from a slowdown in the pace of Federal Reserve rate hikes? Ford with its $130 billion debt load may actually be the stock best positioned to benefit from lower (or at least relatively lower) interest rates. It also doesn’t hurt that of the three stocks mentioned above, Ford is currently the only one making a profit (and not a small one — $11.7 billion over the past 12 months).
Add in the possibility of a possible morning earnings hike, and Ford stock just might be your best bet if you’re betting on a less aggressive Fed.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.
