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Dow closes at record high after Wal-Mart surges on $20 billion buyback

  • Retail giant Wal-Mart announced a $20 billion buyback before the bell and reiterated its earnings outlook for the current fiscal year.
  • Pfizer said it was thinking about selling or spinning off its consumer health-care business.
  • Honeywell announced it plans to spin off its Home Products and Transportation Systems businesses into two separate public companies by the end of next year.
  • This round of corporate news comes as most major companies get set to release their quarterly results.

U.S. stocks rose to record highs on Tuesday after Wal-Mart announced a large buyback and Honeywell said it was splitting into two. Pfizer also contemplated a spin-off as Corporate America looked for ways to keep investors happy and keep this eight-year bull market going.

The Dow Jones industrial average hit intraday and closing record highs, rising 69.61 points to 22,830.68. Wal-Mart contributed the most to the gains.

The Nasdaq composite reached an intraday high, and finished 0.1 percent higher at 6,587.25.

The S&P 500 gained 0.2 percent to finish at 2,550.64, with consumer staples among the best-performing sectors. The index notched a record intraday high.

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Retail giant Wal-Mart announced a $20 billion buyback before the bell and reiterated its earnings outlook for the current fiscal year. The company also said it plans to add 1,000 online grocery pick-up locations at its U.S. stores in fiscal 2019. The news sent the Dow component more than 4.5 percent higher.

Dave Lutz, head of ETF trading at JonesTrading, said the Wal-Mart news was pressuring shares of Amazon. Wal-Mart also talked up its e-commerce business on Tuesday. "That's weighing down the 'FANGs,'" he said. FANGs is an acronym referring to Facebook, Amazon, Netflix and Google-parent Alphabet.

Amazon shares closed 0.4 percent lower.

Pfizer, another Dow component, said Tuesday it was thinking about selling or spinning off its consumer health-care business, which generates $3.4 billion in annual sales. Pfizer's stock rose 0.7 percent.

Meanwhile, Honeywell announced it plans to spin off its Home Products and Transportation Systems businesses into two separate public companies by the end of next year.

A trader works on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

"There's been some pressure from Corporate America to improve performance, and I think this is a reflection of that," said Maris Ogg, president at Tower Bridge Advisors. "Also, bigger companies tend to be harder to manage and grow."

Elsewhere, Procter & Gamble shares pulled back 0.5 percent after shareholders voted against adding Trian's Nelson Peltz to its board of directors.

This round of corporate news comes as most major companies get set to release their quarterly results.

BlackRock, the largest asset manager in the world, is set to report third-quarter earnings and revenue Wednesday before the bell. Big banks such as Citigroup, JPMorgan Chase, Bank of America and Wells Fargo are scheduled to report later this week.

S&P 500 third-quarter earnings are expected to grow 4 percent on a year-over-year basis, according to S&P Capital IQ.

Dubravko Lakos-Bujas, head of U.S. equity strategy and global quant research at JPMorgan Securities, said in a note Tuesday he thinks earnings will be better than expected, noting:

"The macro backdrop remains supportive for earnings growth (y/y) with lower USD (especially favorable for Technology, Healthcare, and Industrials), a goldilocks scenario for Financials with expanding [net-interest margins] and multi-decade low credit costs, and rising commodity prices."

The first two quarters of the year saw stellar earnings growth, with first and second-quarter profits rising 15.5 percent and 10.8 percent, respectively.

Looking ahead, Lakos-Bujas said next year's earnings upside will be "largely dependent on the implementation of a successful tax deal." He also said that even a "moderate" tax cut could contribute about $10 to the S&P 500's consensus earnings per share. "If this scenario becomes base-case, we see S&P 500 drifting higher to ~2,700, which is an upside risk to our existing price target of 2,550."

Equities have recently jumped to record highs on the back of solid economic data and renewed hopes of tax reform. However, a spat between influential U.S. senator Bob Corker and President Donald Trump raises questions about the likelihood of a plan moving forward.

"We believe tax cuts will come, but the target of achieving this by the end of this year looks ambitious – more likely, it will be only in Q1 or Q2 [of next year] that the many differing and sometimes conflicting interests will be reconciled," Paul Mortimer-Lee, chief market economist at BNP Paribas, in a note to clients.

Correction: The Nasdaq composite reached an intraday high. A previous version mischaracterized its move for the day.