The Dow had a mixed week following mixed earnings results and concerns about the situation in Ukraine. The possibility of stimulus measures in the Eurozone and deal news lifted the blue-chip index higher on Monday. Encouraging economic data on durable orders and consumer confidence helped the Dow chalk up gains on Tuesday.
The blue-chip index posted meager gains on Wednesday following mixed earnings and wariness of investors ahead of crucial economic data. The Dow suffered losses on Thursday as tensions in Ukraine overshadowed positive economic reports. The Dow has gained 0.02% during the first four trading days.
Last Week’s Performance
The Dow dropped 0.2% last Friday after US Fed chairwoman Janet Yellen and ECB President Mario Draghi’s speeches at Jackson Hole, WY failed to encourage investors. In her speech at Jackson Hole, Yellen said there is no “simple recipe” that the Fed could follow to determine whether it was achieving its targets. On the other hand, European Central Bank president Mario Draghi also failed to provide any clear picture about weak growth in the Eurozone. Escalating tensions between Russia and Ukraine also dragged the benchmarks down.
For the week, the blue-chip index increased 0.7%. Encouraging economic data especially from the housing sector and upbeat earnings results helped the markets end in the green zone for the week. News of a deal between Dollar General Corporation and Family Dollar Stores Inc. was also welcomed by investors. However, investors remained concerned about the sooner-than-expected interest rate hike. The S&P hit an all-time high on Thursday.
Economic data came in positive throughout the week. Housing data, including reports on homebuilder confidence, existing home sales and building permits were encouraging. Separately, leading indicator index numbers also encouraged investors. Upbeat earnings from companies helped to improve investor sentiment. However, markets were affected after the Fed minutes suggested differing views among the Fed officials about hiking rates sooner than anticipated.
The Dow This Week
Deal news and possibility of stimulus measures in the Eurozone lifted the blue-chip index on Monday. Biotech company InterMune agreed to be bought by Swiss pharmaceutical behemoth Roche Holding AG for an all cash deal valued at about $8.3 billion or $74 per share. This is approximately a 38% premium over InterMune’s closing price last Friday. Roche edged up 0.7%. Separately, comments from the European Central Bank’s President Mario Draghi at Jackson Hole on Friday lifted investor sentiment. The Dow gained 0.4%.
The blue chip index rose 0.2% on Tuesday following encouraging economic data. The Conference Board reported that the Consumer Confidence Index rose to 92.4 in August from 90.3 in July. Investors were also encouraged by the durable orders report. The U.S. Department of Commerce reported that durable orders in July soared 22.6%, beating the consensus estimate of 10%. However, home price data for June was lesser than expected. Merger and acquisition news between Burger King and Tim Hortons also helped the benchmarks end higher. The Dow hit a record intraday level of 17,153.80, but shed some of the gains by the end of the day.
The blue chip index rose a meager 0.1% on Wednesday. Benchmarks ended a listless trading session nearly flat following mixed earnings reports. Investors adopted a wait and see approach ahead of the release of key economic data. These include second estimate of second quarter GDP and pending home sales data. Trading volume on Wednesday was one of the lowest in the year. The volumes were unexpectedly low during this week as some of the investors are in holiday mode ahead of Labor Day.
Markets ended in the red and the S&P fell below the record 2K mark as concerns about Russia-Ukraine tension overshadowed encouraging U.S. economic data on Thursday. Dismal inflation rate data from Eurozone also dragged down the benchmarks. Germany posted higher-than-expected unemployment rate in August with a dismal inflation rate of 0.8%. On the other hand, Spain saw annual deflation rate of 0.5% in August. Moreover, Belgium’s inflation rate reached 0.02%, the lowest level in about 5 years. These factors overshadowed a 4.2% increase in GDP and encouraging data on initial claims and pending home sales. The Dow declined 0.3%.
Components Moving the Index
United Technologies Corp. (UTX) recently reiterated its earnings guidance for 2014 prior to an investor meeting. The outlook was probably based on steady improvements in key end markets and solid execution of its operational plans. At the same time, the company is likely to remain committed to delivering sustainable organic growth through continued focus on product development, best-in-class margins and strong cash generation.
Earnings expectations for 2014 were reaffirmed in the range of $6.75 – $6.85 per share. United Technologies expects revenues will aggregate about $65 billion. The earnings outlook represents year-over-year growth of 9%–10%. The current Zacks Consensus Estimate for 2014 earnings is pegged at $6.85 a share.
The Boeing Co. (BA) won a sizable order from the Singapore-based aircraft-leasing company of the Bank of China Ltd. – BOC Aviation Ltd – for 82 Boeing jets. The contract is valued at $8.8 billion at list prices.
This order comprises 80 single-aisle Boeing 737 jets that include 50 737 MAX 8s. The contract also covers 30 next-generation 737-800s and two extended-range 737-300ERs. These planes are scheduled to be delivered from 2016 through 2021.
The unprecedented rise in passenger traffic in the Asia-Pacific region is bringing in a steady flow of orders. Going ahead, the projected 5.7% increase in airline traffic by 2017, as revealed by the International Air Transport Association (IATA), would boost Boeing’s commercial airplane order book.
Earlier, Boeing had revealed that Asia-Pacific will require 12,820 airplanes worth $1.9 trillion in the next two decades. The deliveries will account for a sizeable 36% of the global commercial airplane delivery in the aforesaid period. These deliveries will triple the size of the Asia-Pacific aircraft fleet by 2032 from 2012 levels.
3M Company’s (MMM) division 3M New Ventures recently obtained an equity stake in Canadian company Smart Energy Instruments (SEI). The financing by 3M New Ventures was accompanied by several existing stakeholders increasing their equity in SEI as well, taking the total financing to $5 million.
SEI develops electronic chipsets with high-precision, real-time monitoring capabilities for smart grids. This stake will bolster 3M’s relevance in the energy sector. SEI’s innovative technology is likely to strengthen 3M’s leadership in this sector and enable the development of innovative solutions for utilities and electrical equipment manufacturers.
DuPont (DD) has filed a patent infringement lawsuit in the U.S. District court for the District of Delaware against SunEdison (SUNE) and its confederate NVT LLC. DuPont claimed that SunEdison has — infringed the former’s patented “Telurium Paste” technology by using photovoltaic cells and solar modules containing “front side metallization paste” manufactured by Samsung SDI Co., Ltd. Neo Solar Power of Taiwan, the cell manufacturer and Flextronics, the contract manufacturer of SunEdison were also named in the complaint.
According to DuPont Electronics & Communications, installers and module makers like SunEdison are not supposed to use infringing cells or pastes from any other manufacturers other than DuPont and are licensed to use only its patent technology. DuPont will execute its patent rights against violation of the contract to protect its investments in innovation for improving solar power efficiency.
The Home Depot, Inc. (HD) announced Craig Menear as the company’s new Chief Executive Officer (CEO) and president. Currently working as president, U.S. retail, Menear’s new role will be effective from Nov 1. Also, he has been appointed as a new board of director with immediate effect.
Home Depot’s current CEO and chairman Frank Blake will continue to be the chairman once Menear takes over as CEO.
McDonald's Corp.’s (MCD) troubles with the Russian authorities continue. Reportedly, the Russian courts upheld the temporary closure of the company’s three outlets in Moscow per the orders of Russian consumer-safety agency, Rospotrebnadzor, on account of multiple violations of sanitary rules. However, McDonald's reportedly announced that it would appeal against the court ruling that ordered a minimum 90-day shutdown of these Moscow restaurants. Earlier this month, three Moscow restaurants were closed after unplanned inspections by Rospotrebnadzor.
Pfizer Inc. (PFE) and Merck & Co. Inc. (MRK) will be collaborating to evaluate Pfizer’s Xalkori in combination Merck’s pipeline candidate, pembrolizumab, in a phase Ib study in patients suffering from anaplastic lymphoma kinase (ALK)-positive advanced or metastatic non-small cell lung cancer (NSCLC). The financial terms of the deal were not made public.
Pfizer, which will conduct the multi-center, open-label phase Ib study, expects to initiate the same in 2015.
Xalkori is currently approved for the treatment of patients suffering from metastatic NSCLC whose tumors are ALK-positive as detected by an approved test. Xalkori generated revenues of $196 million in the second quarter of 2014, up 63% from the year-ago period.
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 gained 0.5%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
-0.5% |
-5% |
|
IBM |
+0.6% |
+3.7% |
|
GS |
+1.5% |
+6.7% |
|
MMM |
-0.3% |
+6.9% |
|
BA |
-0.1% |
-1.4% |
|
CVX |
+1.6% |
+11.6% |
|
UTX |
-0.2% |
-6.8% |
|
XOM |
+1% |
+3.4% |
|
MCD |
-0.5% |
-1.1% |
|
CAT |
+0.9% |
+12% |
Next Week’s Outlook
This week has witnessed the release of a series of encouraging economic reports. This includes a substantial increase in GDP and positive reports on consumer confidence, durable orders, initial claims and pending home sales. However, external factors have overshadowed such data as well as encouraging deal news. Earnings reports were mixed, limiting the impetus received from positive developments.
The key to market movement in the days ahead possibly lies with the slew of upcoming economic reports next week. These include data on manufacturing, services, factory orders and unemployment. A section of investors are also in holiday mode ahead of Labor Day. Next week’s holiday shortened trading is likely to be affected by economic data and international factors as earnings season winds down.
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