The Dow declined through the week, weighed down by a variety of factors. The blue-chip index declined on Monday after investors refrained from placing bets ahead of the second-quarter earnings season. Declines in momentum stocks pushed the Dow lower once again on Tuesday.
The positive tone of FOMC minutes helped the Dow chalk up gains on Wednesday, However, the blue-chip index declined again on Thursday, following concerns about the European banking system. During the first four trading days, the Dow has lost 0.64%.
Last Week’s Performance
The Dow gained 0.5% last Thursday, banking on encouraging June’s nonfarm payroll numbers. Total nonfarm payroll employment jumped 288,000 in June, more than the consensus estimate of a rise by 213,000. Nonfarm payroll jobs increased over the 200,000 level for the fifth straight month in June, a stretch last seen in 1999.
Investors were also encouraged by a drop in the unemployment rate, which declined to 6.1%. This is its lowest level since September 2008. The blue-chip index closed at a record level for the third straight day. The Dow also closed above the 17,000 mark for the first time on Thursday. Markets were closed last Friday due to the Independence Day holiday.
For the week, the blue-chip index added 0.7%. Stocks notched up gains for the week after economic data showed manufacturing activity picked up in U.S and Asia. The Institute for Supply management reported June PMI of 55.3%, indicating expansion in factory output for the 13th successive month. China's final reading of the HSBC/Markit purchasing managers' index (PMI) rose to 50.7 in June. Moreover, Japan’s manufacturing activity also expanded in June.
Gains in health-care, technology and consumer discretionary sectors also propelled the Dow to close at record highs. Upbeat U.S. auto sales in June also boosted investor sentiment.
However, upbeat private sector hiring numbers hardly impacted the markets. Among other economic data, a gauge of pending home sales numbers hit its highest level in eight months in May and data from the Institute for Supply Management showed Chicago PMI numbers dropped more than expected.
Meanwhile, investors remained focused on Federal Reserve Chairwoman Janet Yellen’s comments. Last Wednesday, at the International Monetary Fund in Washington, Yellen said: “Monetary policy faces significant limitations as a tool to promote financial stability.” However, she stated that concerns over financial stability shouldn’t lead to a change in current monetary policy.
The Dow This Week
Benchmarks settled in the red on Monday as investors refrained from placing big bets ahead of the second-quarter earnings season. Bio-tech and Internet stocks suffered losses. The blue-chip index snapped its three-day record run of gains, losing almost 0.3%.
The blue chip index declined 0.7% on Tuesday. Benchmarks ended in the red for the second-straight day, dragged down by declines in momentum stocks. Investors also remained cautious ahead of the start of the second-quarter earnings season. Shares of Internet and bio-tech stocks fell sharply, adding to the losses suffered on Monday. Meanwhile, consumer credit increased by $19.6 billion in May, following a $26.1 billion increase in April.
Encouraging minutes of the FOMC meeting propelled stocks higher on Wednesday. Policy makers said they will end the asset purchase program by October provided the economy shows signs of strength. They also clarified that this was not an indication that rates would be hiked immediately. Meanwhile, the earnings season kicked off on an upbeat note with Alcoa Inc. (AA) reporting better-than-expected second quarter results. The Dow gained 0.5%.
The Dow declined 0.4% on Thursday following investor concerns about the European banking system. One of Portugal’s largest banks, Banco Espírito Santo SA, failed to make bond payments. These jitters compelled investors to park money in safe haven-assets. Economic data from Asia was also disappointing and led investors to cut equity exposure. Domestic economic reports were limited to encouraging initial claims numbers and a less-than-expected rise in U.S wholesale inventories.
Components Moving the Index
The Boeing Company (BA) reported strong delivery numbers for the second quarter as well as the first half of 2014, beating archrival Airbus. During the first half of the year, Boeing delivered 342 commercial jetliners, 11.8% higher than the year-ago level. On the other hand, Airbus delivered 303 commercial planes so far this year.
The commercial aerospace major recently sealed a big deal for its wide-bodied 777X aircraft from Dubai’s Emirates Airline. Dubai's Emirates Airline confirmed it will buy 150 777X aircraft, comprising 115 Boeing 777-9Xs and 35 777-8Xs, for a whopping $56 billion at list prices.
Generally airlines get large discounts on bulk orders. Emirates Airline also has purchase rights to buy an additional 50 airplanes, which if exercised would boost the value to nearly $76 billion at list prices.
The company also secured a sizable contract from the National Aeronautics and Space Administration (NASA) to develop the core stage of the largest ever Space Launch System (SLS) rocket. After completing the Critical Design Review (CDR) on the core stage, Boeing finalized a $2.8 billion contract with the space agency to enter into full production.
IBM Corp’s (IBM) sale of its low-end server business to China-based technology company Lenovo Group for $2.3 billion recently received regulatory approval from China’s anti-monopoly branch.
This approval from the Chinese Government is a positive for both Lenovo as well as IBM. IBM is a U.S.-based firm and per Chinese law, a China-based entity aiming to expand into Western markets has to obtain approval from the government for the same.
Intel Corp. (INTC) has signed an agreement with Panasonic Corporation’s System LSI Business Division to produce system-on-chip (SoC) products for the latter, using its proprietary 14-nanometer Tri-Gate transistor technology.
The collaboration should be a positive for both the parties. Intel’s advanced manufacturing facilitates the fabrication of highly integrated, more powerful chips that generate less heat at lower costs. Therefore, Panasonic’s SoC products using Intel’s technology will have a lead over chips offered by traditional manufacturers like Taiwan Semiconductor Manufacturing Company.
Microsoft Corp. (MSFT) recently entered into a patent cross-licensing agreement with Canon Inc. However, the specific terms and conditions of the agreement have been kept under wraps.
The cross-licensing agreement covers a broad range of products and technologies, including certain digital imaging and mobile consumer products. Per the deal, Microsoft and Canon will be able to access each other’s patent portfolios. Such deals avert the risk of unnecessary patent lawsuits and enable companies to focus on offering inventive technologies.
Microsoft recently released the second generation Kinect, a motion sensing camera, for Windows v2. Kinect 2.0 is available for pre-order now in Microsoft stores and will hit the markets for sale on Jul 15 at $199. Kinect was originally launched as part of Microsoft’s Xbox gaming console.
Performance of the Top 10 Dow Companies
The table given below shows the price movements of the 10 largest components of the Dow, which is a price weighted index, over the last five days and during the last six months. Over the last five trading days, the Dow has lost 0.69%.
|
Ticker |
Last 5 Day’s Performance |
6 Month Performance |
|
V |
-0.04% |
-2.53% |
|
IBM |
-0.42% |
+0.23% |
|
GS |
-3.09% |
-8.39% |
|
MMM |
-1.01% |
+5.66% |
|
BA |
-0.93% |
-10.65% |
|
CVX |
-0.70% |
+7.64% |
|
UTX |
-1.76% |
-0.28% |
|
XOM |
+0.69% |
+2.04% |
|
MCD |
-0.46% |
+4.99% |
|
CAT |
-0.64% |
+20.83% |
Next Week’s Outlook
Stocks have made losses through the week due to a variety of factors. While investors have been wary of placing bets ahead of the earnings season, momentum stocks have plunged once again. Meanwhile, concerns arising out of developments in Europe have also dampened investor sentiment. Not many economic reports were released during the period. The ones released had little impact on market direction.
However, next week has several key reports scheduled for release. This includes data on retail sales, business inventories, industrial production, inflation and housing. Given the nature of these reports, they would probably have a significant impact on the fortunes of shares. But international developments would continue to affect market movement. As earnings season picks up pace, market movement is also likely to be affected by the earnings of bellwether stocks.
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