The Dow had a dismal week, but for Wednesday, due to a number of disparate factors. The blue-chip index closed in the red on Monday following growth worries in China and disappointing home sales data. Sluggish growth data from the Eurozone and air strikes in Syria led to losses for the Dow on Tuesday.
The blue-chip index rebounded on Wednesday, powered by upbeat home sales data and ECB’s announcement of monetary stimulus. Heightened geopolitical tensions, dismal durable orders data and a decline in tech stocks led to losses for the blue-chip index on Thursday. The Dow has lost 1.3% during the first four trading days.
Last Week’s Performance
The Dow gained 0.1% last Friday to close at a record high for the second consecutive day. However, markets finished almost flat on Friday as Alibaba Group Holding Limited’s (BABA) grand debut on the NYSE failed to offset declines in technology shares. Alibaba raised over $21.8 billion by pricing its shares at $68 late Thursday last week. Separately, investors were encouraged by polling results that showed Scotland will remain united with U.K.
Over the week, the blue-chip index gained 1.7%. Investors remained focused on the Federal Reserve’s two-day policy meeting as they were concerned about possibilities of a sooner-than-expected rate hike. However, on Wednesday, the Federal Reserve said it would keep short-term interest rates near zero for a “considerable time.” The Fed pledged not to hike rates immediately after the end of the quantitative easing program.
Fed Chairwoman Janet Yellen said that the pledge to keep low interest rates depends on the state of the economy. She said: “The labor market has yet to fully recover.” This statement boosted investor sentiment. The central bank also provided new rate projections. Fed funds rates are estimated at 1.375% and 2.875% for end of 2015 and 2016, respectively.
However, concerns about the Scottish independence vote and China’s dismal economic data eroded some of the gains. China’s industrial production expanded at the slowest pace since Dec 2008. Industrial production increased by 6.9% in August year over year, less than 9% in July. China also posted its first drop in electricity production since 2009.
The Dow This Week
The Dow lost 0.6% on Monday, retreating from the record level it achieved on Friday. Growth worries in China and disappointing home sales data dragged down the benchmarks. On Sunday, China Finance Minister Lou Jiwei stated that government will not “make major policy adjustments” based on any one economic indicator.
Recently, a report showed that China’s industrial production expanded at the slowest pace since Dec 2008. Industrial production increased by 6.9% in August year over year, less than 9% in July.
Jiwei’s comments dampened investor sentiment as markets were looking forward to news related to aggressive economic stimulus measures. The National Association of Realtors reported on Monday that existing home sales declined unexpectedly in August, snapping four straight months of gains. Sales dropped 1.8% to 5.05 million in August from 5.14 million in July on a seasonally adjusted basis.
Moreover, a decline in oil prices had a negative impact on energy stocks. Prices of WTI crude oil and Brent crude oil declined 1% and 1.5%, respectively.
Markets once again ended in the red on Tuesday. Sluggish growth data from the Eurozone and air strikes in Syria offset China’s encouraging economic data. Markit reported that composite Purchasing Managers Index (PMI), an indicator of the health of Eurozone’s manufacturing and services sectors, declined to 52.3% in September.
Meanwhile, the U.S. launched massive air strikes for the first time against militants in Syria. The bombing was also supported by its Arab allies such as Saudi Arabia, Qatar and the United Arab Emirates.
Separately, the preliminary reading of HSBC China Manufacturing Purchasing Managers Index showed that manufacturing activities in China improved marginally in September. However, this encouraging reading failed to boost investor confidence. Moreover, announcement of tighter-than-expected tax inversion rules had a negative impact on the benchmarks. The blue chip index lost 0.7%.
The Dow rebounded on Wednesday, gaining 0.9%. Benchmarks were buoyed by upbeat home sales data and the European Central Bank’s (ECB) announcement of monetary stimulus. Encouraging comments by two Fed officials regarding health of the economy and rate hike also lifted sentiment. Chicago Fed president Evans said on Wednesday that the Fed must be “exceptionally patient” regarding the rate hike.
On the other hand, President of Federal Reserve Bank of Cleveland Loretta Mester said the Fed should provide a clearer picture regarding rate hike as the economy has shown signs of recovery. European Central Bank president Mario Draghi said the ECB will opt for further policy easing to help the Eurozone’s economy to recover at a faster rate.
Benchmarks ended in the red on Thursday as the tech sector slumped. Moreover, heightened geopolitical tensions and dismal durables orders data also dented investor sentiment. A draft law was submitted to Russia’s parliament, which, if approved, would enable seizure of assets of foreign companies in the country.
Separately, Haider al-Abadi, the Iraqi Prime Minister, warned that militants of ISIS are planning to organize terror attacks on metro subways of the U.S. and France. Durable orders declined 18.2% in August to $245.4 billion, wider than the consensus estimate of 17% drop. The Dow lost 1.5%, witnessing its steepest one-day decline since Jul 31.
Components Moving the Index
Microsoft Corp. (MSFT) has postponed the launch of its Xbox One game console in China to Sep 29. The launch was initially slated for Sep 23. The government has approved 10 games, digital versions of which will also be available.
Microsoft stated that though it has made steady progress, it still needed some more time to deliver the best experience to its users. Apart from this, no other reason was given for the delay. The company will compensate customers who had pre-ordered with two free games.
The Procter & Gamble Company (PG) is set to fully exit its underperforming pet care business with the sale of the remainder of its pet care business in Europe to consumer products company Spectrum Brands Holdings, Inc. (SPB). On Tuesday, P&G announced that it will sell its pet care brands in Europe to Spectrum Brands for an undisclosed amount.
The Spectrum deal is expected to close in 2015, subject to regulatory approvals. The deal has already been approved by Spectrum’s board of directors. The transaction includes 42 markets in Europe.
AT&T Inc. (T) recently announced its plans to launch Samsung Gear S at its stores in the fall of 2014. The latest product launch comes close on the heels of the carrier’s last week announcements of the upcoming launches of LG G3 Vigor and Samsung Galaxy Alpha.
The new product rollouts will enable the company to keep up with the mad rush characteristic to the present-age smartphone market. Moreover, in the face of iPhone6 creating a wave in the said market, the new offerings will also ensure better value for Android loyalists.
The Boeing Co. (BA) and Lockheed Martin Corp.’s (LMT) partnership United Launch Alliance (ULA) has teamed up with Blue Origin LLC, founded by Amazon.com Inc.'s Jeff Bezos, to build a new rocket engine named BE-4. The agreement is for a four-year development process with testing slated for 2016 and flight in 2019.
The BE-4 is now under testing at Blue Origin's West Texas facilities. The U.S. made rocket engine will cost much less than the Russian-built RD-180 that is currently in use to power ULA's heavy-lift Atlas 5 rockets. Although ULA already has a two-year supply of Russian engines with an additional 11 to be delivered by 2014 end and 2015, the BE-4 will be a standby just in case the RD-180 engine supply gets disrupted.
JPMorgan Chase & Co. (JPM) signed a definitive contract with Webster Financial Corp. to sell the health savings account (HSA) business managed by its subsidiary – JPMorgan Chase Bank, N.A. The price and terms of the deal were not divulged by the company.
Per the agreement, JPMorgan will transfer around 700,000 HSAs to Webster’s subdivision HSA Bank. Though the purchase price was not revealed, the cash transaction comprises roughly $1.3 billion in deposits and $175 million in investments. Moreover, the deal is subject to regulatory approval and customary conditions
Wal-Mart Stores Inc. (WMT) has partnered with Green Dot Corporation, a company known for its reloadable prepaid cards, to bring mobile checking accounts, called GoBank to its shoppers. The accounts, which will be linked to Mastercard debit card, will not charge overdraft fees that traditional banks charge customers who do not have enough money in their accounts to cover purchase.
GoBank will charge $8.95 a month but will waive the fee if customers consent to a monthly direct deposit of $500. After opening the account, customers, on paying $2.95, will get a starter kit, which will include a MasterCard debit card that can be used at more than 42,000 ATMs around the country.
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 2.2%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
-3.1% |
-2.3% |
|
IBM |
-2.8% |
-1.9% |
|
GS |
-2.1% |
+13.8% |
|
MMM |
-3.4% |
+7.1% |
|
BA |
-1.9% |
+2.9% |
|
CVX |
-3.6% |
+2.5% |
|
UTX |
-4.1% |
-8.8% |
|
XOM |
-3% |
-0.5% |
|
MCD |
+0.3% |
-1.8% |
|
CAT |
-4.4% |
+1.8% |
Next Week’s Outlook
A variety of factors have led to losses for the markets this week. This includes both external and domestic events. However, international tensions and foreign economic indicators have dominated headlines throughout. News from China and data from the Euruozone have figured prominently among economic factors. Additionally, the conflict with ISIS and Russia’s response to Western sanctions are the political events dragging down stocks.
Starting with today’s final numbers on second quarter GDP, a series of economic reports are lined up for release in the days ahead. This includes data on personal spending, consumer confidence, home prices, manufacturing, construction spending and factory orders. Given the nature of international developments, stocks would receive a much needed boost, if most of these reports are on the positive side.
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