The Dow experienced gains every day of the week, but for Wednesday, boosted by positive economic data and bullish earnings results. The blue-chip index posted meagre gains on Monday after investors took a breather following last week’s sharp gains. The Dow gained significantly on Tuesday, banking on positive earnings results and upbeat consumer confidence data.
However, the blue-chip index slipped into the red zone on Wednesday after the Federal Reserve ended its quantitative easing program. The Dow rebounded on Thursday, posting a triple-digit gain for the eighth time this month. The Dow has gained 2.6% during the first four trading days.
Last Week’s Performance
The Dow rose 0.8% last Friday, banking on upbeat quarterly results from Microsoft Corp. (MSFT) and The Procter & Gamble Co. (PG). Shares of Microsoft went up 2.5%, the biggest percentage gainer among the Dow components on Friday. Shares of the world's largest household products maker increased 2.3%.
Encouraging new home sales data also added to the bullish sentiment while investors shrugged off concerns over New York’s first Ebola case. New home sales increased 0.2% in September to seasonally adjusted annual rate of 467,000 from revised August’s figure of 466,000. Sales of new homes touched a six-year high in September. September sales also improved 17% year on year.
Over the week, the Dow gained 2.6%. Benchmarks ended in the green for the week due to upbeat earnings results. Major companies such as Caterpillar Inc. (CAT) and 3M Company (MMM) reported positive quarterly results.
Encouraging economic news from the Eurozone and China also lifted the markets. The Chinese flash HSBC /Markit manufacturing purchasing managers’ index (PMI) increased to 50.4 in October from 50.2 in September. China’s GDP grew at 7.3% in the third quarter, ahead of the consensus estimate of 7.2%.
Additionally, factory output in China increased at a rate of 8% in September, more than August’s growth rate of 6.9%. Separately, the Markit Flash Eurozone Manufacturing PMI rose to 50.7 in October from 50.3 in September.
The prospect of the European Central Bank buying corporate bonds also boosted markets last week. On the other hand, gunfire in and around the Canadian Parliament building in Ottawa, lower crude prices and dismal earnings results from IBM Corp. (IBM) were some of the negatives for the week.
The Dow This Week
Investors took a breather on Monday following last week’s sharp gains. Markets were focused on the outcome of the Federal Open Market Committee’s meeting and corporate earnings results. Oil prices dropped after The Goldman Sachs Group, Inc. (GS) slashed its oil price projections for first-quarter 2015. Goldman Sachs reduced its target price for WTI crude oil to $75 per barrel from $90 per barrel. The Dow gained a meagre 0.1%.
Energy shares dropped along with decline in oil prices. The day’s economic data was also positive. Pending Home Sales Index went up 0.3% to 105 in September. However, rise in pending home sales in September was less than the consensus estimate of an increase by 0.8%.
The Dow gained 1.1% on Tuesday, banking on positive earnings results and upbeat consumer confidence data. The Dow posted its fourth-straight win and also moved above the 17K mark for the first time since Oct 3.
Consumer confidence touched a seven-year peak in October. The Conference Board reported that the Consumer Confidence Index rose to 94.5 in October from 89 in September. Encouraging consumer confidence data overshadowed discouraging industrial and housing data.
Durable orders in September decreased 1.3%, contrary to the consensus estimate of a rise by 0.6%. Separately, the S&P/Case Shiller composite index of 20 cities increased 0.2% in August on seasonally adjusted basis from July. The index for 20 cities gained 5.6% year over year, which was short of market expectations of a 5.7% increase.
Benchmarks slipped into the red zone on Wednesday after the Federal Reserve ended its quantitative easing program. Fed remained committed to keep interest rate low for a “considerable time.” Fed also presented an optimistic view on the labor market and inflation. The Dow snapped its four-session long winning streak and closed below the 17k mark, losing 0.2%.
The Federal Reserve announced it will end its bond-buying stimulus program this month after purchasing the final $15 billion worth of bonds. Meanwhile, the Fed pledged to keep federal funds rate low for a “considerable time” after the end of the monthly asset-purchasing program. However, the central bank mentioned the rate hike may come sooner than expected provided the economy grows faster than anticipated.
The Dow posted a triple-digit gain for the eighth time this month on Thursday. The blue-chip index gained 1.3%, banking on encouraging third quarter GDP numbers and upbeat quarterly results. Visa Inc.’s (V) better-than-expected quarterly results boosted the Dow. Shares of the world’s largest payments network surged 10.2%.
Additionally, third quarter GDP increased at an annual rate of 3.5%, more than the consensus estimate of an increase by 3%. This rise in third-quarter GDP comes after an expansion of 4.6% in the prior quarter. GDP growth was fuelled by a 7.8% jump in exports.
Components Moving the Index
DuPont (DD) posted adjusted earnings of 54 cents per share in the reported quarter, above 45 cents per share logged a year ago. It beat the Zacks Consensus Estimate of 53 cents. Adjusted earnings exclude one-time items including charges associated with the separation of the company's performance chemicals business.
Including one-time items, DuPont recorded earnings from continuing operations of 47 cents per share, versus 28 cents per share a year ago. Consolidated net income, as reported, jumped roughly 52% year over year to $433 million or 47 cents per share from $285 million or 30 cents per share in the prior-year quarter.
DuPont's net sales for the reported quarter dipped 2.9% year over year to $7,511 million, impacted by portfolio changes. Sales trailed the Zacks Consensus Estimate of $7,956 million.
DuPont backed its earnings guidance for 2014 and continues to see adjusted earnings per share for the year in the band of $4.00 to $4.10. The current corresponding Zacks Consensus Estimate is $4.00.
Merck & Co. (MRK) reported third quarter 2014 earnings of 90 cents per share, beating the Zacks Consensus Estimate of 88 cents. Earnings, however, declined 2.2% from the year-ago period.
Revenues for the quarter declined 4.3% to $10.557 billion, just shy of the Zacks Consensus Estimate of $10.689 billion. Including one-time items, third quarter 2014 earnings fell 18.4% to 31 cents per share.
Merck’s Pharmaceutical segment posted revenues of $9.1 billion, down 4%. While products like Nasonex, Temodar, Singulair and Cozaar/Hyzaar were affected by generics, higher competition impacted Victrelis and PegIntron sales.
Pfizer Inc. (PFE) posted third quarter 2014 earnings of 57 cents per share, a penny above the Zacks Consensus Estimate but 2% below the year-ago earnings. Revenues, which declined 2% to $12.4 billion, were above the Zacks Consensus Estimate of $12.1 billion.
Revenues were impacted by the loss of exclusivity of certain products including Detrol LA (in the U.S.), the expiry of the Spiriva collaboration in some countries and the Enbrel agreement. While foreign exchange rates cut Pfizer’s third quarter revenues marginally ($11 million), operational factors cut revenues by $270 million or 2%.
Pfizer tightened its earnings outlook for 2014 to $2.23 – $2.27 per share (old guidance: $2.20 – $2.30). The company now expects 2014 revenues of $48.7 billion – $49.7 billion (old guidance: $48.7 billion – $50.7 billion). The Zacks Consensus Estimate for earnings and revenues is currently $2.26 per share and $49.3 billion, respectively.
Visa’s fourth-quarter fiscal 2014 (ended Sep 30, 2014) operating earnings per Class A common share (EPS) of $2.18 outpaced the Zacks Consensus Estimate of $2.11 by 3.3%. With this, the company kept the earnings streak alive for the four trailing quarters, with an average beat of 2.4%. EPS also surged 17% from the prior-year quarter figure of $1.85 per share.
Operating net income increased 13.8% to $1.36 billion from $1.19 billion in the year-ago quarter. Including litigation provision of $283 million ($450 million pre-tax) or 45 cents per share, reported net income in the quarter was $1.07 billion or $1.72 per share.
Alongside, total operating revenue for the reported quarter was $3.23 billion, up 8.6% year over year and also exceeded the Zacks Consensus Estimate of $3.19 billion.
Visa provided the financial outlook for fiscal 2015, anticipating annual operating earnings per share to grow in mid-teens range. Annual net revenue growth is expected to be within low double-digits, with an adverse foreign currency impact of about 2%.
Procter & Gamble’s first quarter adjusted earnings (excluding non-core items) of $1.07 per share lagged the Zacks Consensus Estimate of $1.08 per share by a penny.
However, earnings increased 2% year-over-year in the quarter despite currency headwind of 7 cents. Excluding currency headwinds, earnings increased 9% owing to pricing gains and cost reductions.
P&G’s net sales remained flat at $20.79 billion due to a 1% headwind each coming from currency and minor divestures. The top line narrowly missed the Zacks Consensus Estimate of $20.87 billion.
P&G has reiterated its guidance for organic sales and core earnings per share.
Microsoft reported encouraging first quarter 2015 results with earnings of 54 cents exceeding the Zacks Consensus Estimate of 49 cents. Revenues of $23.20 billion edged up 0.8% sequentially and 25.2% from last year, better than the Zacks Consensus Estimate of $21.59 billion.
Following the acquisition of the Nokia Devices and Services (NDS) business that closed on Apr 25, management changed the reporting structure to add a sub-segment called Phone Hardware to the Devices & Consumer (D&C) segment. They also renamed the D&C Hardware segment as Computing and Gaming Hardware.
Accordingly, D&C Licensing, Phone Hardware, Computing and Gaming Hardware and D&C Other revenue made up 18%, 11%, 10% and 8% of quarterly revenue, respectively taking the contribution of the Devices & Consumer segment to 47%.
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 3%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
+10.8% |
+16.8% |
|
IBM |
+1.3% |
-16.4% |
|
GS |
+3.7% |
+17% |
|
MMM |
+4.8% |
+9.4% |
|
BA |
+1.2% |
-4% |
|
CVX |
+1.7% |
-6.6% |
|
UTX |
+3.3% |
-10.1% |
|
XOM |
+0.8% |
-7.8% |
|
MCD |
+2.9% |
-7.9% |
|
CAT |
+0.9% |
-5% |
Next Week’s Outlook
Positive earnings results and encouraging economic data have helped the Dow register strong gains this week. The only exception has been a decline on Tuesday, when the Fed ended its bond purchase program. However, it made encouraging comments on the labor market while reaffirming that interest rates would not be raised in the near future.
The earnings season will continue to provide direction to the markets next week. At the same time, economic data will continue to play a major role. Next week features a series of crucial economic reports. If these reports maintain the positive tone set this week, stocks could move higher in the days ahead.
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