(Bloomberg) -- DowDuPont Inc.'s 2019 profit warning stopped a five-week rally in chemical stocks dead in its tracks Thursday, but Sherwin-Williams Co. helped stanch the bleeding.
A lot's riding on the state of fourth quarter earnings. The S&P 500 Chemicals Index is up about 12 percent since its low on Christmas Eve, and plenty of analysts figured most of the bad news was already priced-in and the sector may have found a bottom.
DowDuPont is far and away the biggest stock in the chemical group, accounting for more than a quarter of the index. The index saw its biggest decline since early December on Thursday, fueled by DowDuPont's worst day in more than three years.
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For all that, Morgan Stanley thought it may have seen a silver lining in DowDuPont's warning, saying the Delaware-based stalwart is being conservative in its outlook because of continued macro uncertainty and the pending split. This may lead investors to ultimately view "the overall story as de-risked," analyst Vincent Andrews wrote.
DowDupont's slump turned back the chemicals group, which Wednesday threatened to break above its 100-day moving average.
The bright spot Thursday came from Sherwin-Williams Co., which rose as much as 5.5 percent, even after reporting lower-than-estimated fourth quarter adjusted earnings and issuing 2019 guidance. Baird analyst Ghansham Panjabi said the earnings report was a “net positive” for the shares and Sherwin will continue to build on its earnings momentum throughout 2019. He also noted that the fourth quarter earnings were in-line with Sherwin's Jan. 15 warning.
Other movers and related news within the sector include:
- LyondellBasell Industries fell as much as 3.4 percent. RBC analyst Arun Viswanathan expected LyondellBasell , Westlake Chemical and Huntsman Corp. to trade lower in sympathy of DowDuPont.
- Eastman Chemical also fell as much as 3.5 percent, ahead of its earnings report that's due post-market on Jan. 31.
- Methanex fell after its adjusted earnings per share for the fourth quarter missed the lowest analyst estimate. BMO analyst Joel Jackson thinks the fourth quarter miss "looks bad for a stock with leading YTD materials performance," but methanol fundamentals seem stable.
- Celanese fell 2.5 percent, while FMC Corp. declined 3.7 percent intraday. Celanese reported on Jan. 28. FMC reports on Feb. 11 post-market, with option implied earnings related share move of around 4.5 percent.
- Lithium producer Albemarle's held steady amid the chemical sell-off, gaining as much as 1.7 percent. Some analysts were predicting the stock to be a stand-out within the group this earnings season, due to its lithium exposure. The company reports on Feb. 20, post-market.
To contact the reporter on this story: Aoyon Ashraf in Toronto at aashraf7@bloomberg.net
To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Scott Schnipper
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