The Dow’s 275-Point Drop Is Scary…but Not Scary Enough

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With the Dow Jones Industrial Average sliding, today's Intraday Update...

•...looks at how the recent correction didn't really frighten investors;
•...examines the bullish and bearish arguments for Target;
•...and considers the potential impact of tariffs on Boeing.

Stocks Slide Gets Scary

Stocks are slumping again this afternoon as Gary Cohn's resignation continues to shake up the market.

The S&P 500 has fallen 0.6%, to 2710.63, at 12:49 p.m. today, while the Dow Jones Industrial Average has dropped 265.91 points, or 1.1%, to 24,618.21. The Nasdaq Composite has slipped 0.3%, to 7349.95.

Despite all the worries that we can list as catalysts for the market's recent volatility—high rates, accelerating inflation, and tariffs among them—we're still convinced that this selloff has more to do with sentiment and positioning. Last year was so good that it drove even more investors into the market heading into 2018, which resulted in the S&P 500's trend accelerating. Then a slightly larger-than-expected wage increase caused stocks to sink, but it really could have been anything.

But even with the recent drops, it’s fair to wonder whether that overconfidence has really faded away. Yes, everyone was freaked out by the initial correction, but then the S&P 500 bounced off its 200-day moving average, and it seemed as if much of the fear dissipated. While bulls would call the correction the pause that refreshes, Leuthold Group's Doug Ramsey notes that at its low, the S&P 500's five-year normalized price/earnings ratio was still in the historical 95th percentile. "After the 'dip buyers' have been rewarded eight consecutive times, is a correction all that scary anymore?" he writes. "If the correction proves to be one to buy, we think the rally will be one to sell."

It certainly looks like investors are starting to get a little more scared. —Ben Levisohn

Bulls vs. Bears: Target

Shares of Target (TGT) are lower again on Wednesday for the second day after the retail giant reported disappointing fourth-quarter earnings—despite a positive pre-announcement. Its forecast, however, was slightly optimistic. So did Target's 4.3% drop yesterday create a buying opportunity?

What the Bulls Say: Susquehanna's Bill Dreher writes that there's plenty of upside to consensus estimates this year, and that Target's presentation gave him "extreme confidence" that management is taking the right steps, which will pay off as Target emerges as an "omnichannel leader" in fiscal 2019.

What the Bears Say: Stifel's Mark Astrachan warns that the company's gross margin estimates could prove too optimistic, given intense retail competition that may require additional investment, and that the stock is selling off because investors are worried it will have to step up its spending.

What Barron's Says: Although the shares are falling, it's worth noting that Target is shifting to an offensive position after retail's rough 2017, and it's far from the only retailer investing in its business to stay ahead of competition. It's also held up much better than rival Walmart (WMT), which also tumbled on its fourth-quarter earnings. In October, Barron's Vito Racanelli wrote that Target's "progress...hasn't been linear," and it still isn't. We're sticking with our bullish view for now. —Teresa Rivas

Tariffs Tank Boeing

At the start of the year, industrials were beneficiaries of optimism about the strength of the global economy. Now, it's hard to think about them without wondering where they stand ahead of a looming trade war. (Hint: they're bad news for General Electric (GE), but then, what isn't?)

Boeing (BA), the best-performing Dow stock in 2017hasn't escaped scrutiny about how rising steel and aluminum prices would affect its business. In fact, its shares have tumbled 5% so far this month, compared to the Industrial Select Sector SPDR ETF's (XLI) 1.5% decline and the S&P 500's 0.3% decline.

Cowen & Co.'s Cai von Rumohr contends that those worries are overblown. He reiterated an Outperform rating and $415 price target on the shares Wednesday, arguing that the impact of tariffs to aircraft profitability should be fairly minimal, given the company's ability to pass costs on to its customers, and moreover, most of the top 10 aluminum suppliers to the U.S. also have large trade surpluses.

That isn't helping it today: Shares of Boeing have dropped 1.6%, to $434.19, at 12:42 p.m. today. —T.R.
