The Dow experienced a holiday shortened but successful week, boosted by monetary stimulus from the European Central Bank. Markets were closed on Monday due to the Martin Luther King Jr. Day holiday. The Dow gained a meager 0.02% on Tuesday following a choppy trading session led by gains from technology shares.
The blue-chip index moved upward on Wednesday following speculation that the ECB might provide more stimulus measures to boost the Eurozone economy. The Dow gained again on Thursday after the ECB announced a large-scale bond buying program to revive the near-stagnant Eurozone economy. The Dow has gained 1.8% during the first four trading days.
Last Week’s Performance
Markets were closed on Monday due to the Martin Luther King Jr. Day holiday. The Dow increased a meager 0.02% on Tuesday following a choppy trading session led by gains from technology shares. Investors also remained focused on ECB’s meeting scheduled for Thursday.
Meanwhile, oil prices dropped after IMF trimmed its global growth forecast for 2015 and 2016. The West Texas Intermediate (WTI) crude oil price nosedived almost 5% and the price of Brent crude also dropped 4.5%. The IMF made the sharpest cut to its global growth forecast in three years. The IMF now sees global growth at 3.5% in 2015, down from the previous projection of 3.8%.
Stocks notched up gains on Wednesday following speculation that ECB might provide more stimulus measures to boost the Eurozone economy. The European Central Bank’s (ECB) executive board has proposed a bond-buying program of about 50 billion euros per month in order to combat concerns over deflation in the Eurozone.
Oil prices moved north, boosting investor sentiment, following expectations of ECB’s stimulus measures. The West Texas Intermediate (WTI) crude oil price gained 2.7% while price of Brent crude oil also advanced 2.1%.
Meanwhile, the Bank of Canada’s surprise rate cut added to the bullish sentiment. The Bank of Canada trimmed its interest rate by 25 basis points to 0.75% due to continuous slump in oil prices. The bank said plunge in crude oil prices are “unambiguously negative” for its economy. The blue-chip index moved up 0.2%.
The Dow gained 1.5% on Thursday after the ECB announced a large-scale bond buying program to revive the near-stagnant Eurozone economy. ECB President Mario Draghi said the bank will buy 60 billion euros a month in assets including both government and private sector bonds, and securities issued by European organizations. The bond-buying program will begin in March and is expected to continue at least till Sep 2016.
Additionally, upbeat quarterly results by banks and transportation companies boosted investor sentiment. The Dow Jones Transportation Average gained 2.9%, the most since Oct 2014.
The day’s economic data was limited to jobless claims for the week ending Jan 17, which declined by 10,000 from the previous week’s level to 307,000. However, oil prices took a beating as inventory supply touched its highest level in eight decades. For the blue-chip index, 27 out of 30 components settled in positive territory
Components Moving the Index
American Express Co. (AXP) or AmEx reported fourth-quarter 2014 operating earnings per share (EPS) of $1.39, which beat the Zacks Consensus Estimate by a penny. EPS also topped the year-ago quarter figure of $1.21 by 15%. This was the fourth consecutive earnings beat. The company’s average four-quarter beat stands at 2.8%.
Notably, net income from operations improved 11% year over year to $1.45 billion from $1.31 billion in the year-ago period. The upside was primarily driven by higher consumer spending on AmEx cards and lower share count.
AmEx’ total billed business, or global card spending, continued to witness improvement in the U.S. and overseas, increasing 6% year over year to $268.5 billion.
IBM Corp. (IBM) reported fourth-quarter 2014 non-GAAP earnings (including acquisition and retirement related adjustments) of $5.81 per share beat the Zacks Consensus Estimate of $5.41. However, earnings declined 5.7% from the year-ago quarter figure of $6.16.
For full-year 2014, the company’s earnings per share of $16.53 were down from $16.64 in 2013.
Fourth-quarter revenues of $24.1 billion not only missed the Zacks Consensus Estimate of $24.7 billion but also declined 11.9% year over year. Full-year revenues also went down 5.7% year over year to $46.4 billion.
For 2015, IBM rendered a soft outlook. The company expects revenues to remain flat year over year and adjusted earnings in the range of $15.75 to $16.50. In addition, free cash flow is likely to be flat in 2015.
Johnson & Johnson’s (JNJ) fourth-quarter 2014 earnings (excluding special items) were $1.27 per share, a couple of cents above the Zacks Consensus Estimate of $1.25 per share and 2.4% above the year-ago earnings.
Fourth quarter sales of $18.3 billion were shy of the Zacks Consensus Estimate of $18.5 billion, and dropped 0.6% from the year-ago period.
While operational factors favorably impacted sales by 3.9%, currency fluctuations had a negative impact of 4.5%.
Including one-time items, Johnson & Johnson reported fourth quarter earnings of 89 cents per share, well below the year-ago earnings of $1.23 per share.
Full year earnings came in at $5.97 per share (up 8.2% year-over-year) on revenues of $74.3 billion (up 4.2% year-over-year).
UnitedHealth Group Inc. (UNH) reported fourth-quarter 2014 earnings of $1.55 per share, beating the Zacks Consensus Estimate of $1.50. Earnings grew 9.9% year over year.
The improvement came on the back of higher revenues. Strong results from Optum reflected a solid performance at its health services business while the UnitedHealthcare segment also contributed to growth.
UnitedHealth posted revenues of $33.4 billion, up 7.4% year over year and marginally ahead of the Zacks Consensus Estimate of $33 billion. Broad-based organic growth and business expansion in both health care benefits and health care services aided results.
For full year 2014, UnitedHealth's operating income came in at $5.70 per share, beating the Zacks Consensus Estimate of $5.65 per share. The figure was also up 3.6% year over year.
Full year earnings came in ahead of the company’s guidance range of $5.60–$5.65 per share. Total revenue of $130.5 billion increased 6.5% year over year and ahead of the Zacks Consensus Estimate of $130.2 billion. The company once again exceeded its own guidance of $130.0 billion.
The Travelers Companies Inc. (TRV) posted operating earnings of $3.07 per share in the fourth quarter of 2014, outperforming the Zacks Consensus Estimate by 21%. Earnings improved 14.6% year over year.
The outperformance came on the back of higher net favorable prior-year reserve development and increased underlying underwriting gain. Lower net investment income and an increase in other expense limited the upside.
Operating income of $10.55 per share surpassed the Zacks Consensus Estimate by 5.3% and increased 12% year over year. Net income improved 10% year over year to an all-time high of $10.70 per share. Revenues of $27.2 billion surpassed the Zacks Consensus Estimate of $26.4 billion and improved 4% year over year.
Verizon Communications Inc.’s (VZ) bottom line was in line with the Zacks Consensus Estimate while the top line significantly surpassed the same. However, increased churn rate, higher customer acquisitions costs and provision for pension payment are near-term concerns.
Quarterly net loss came in at $2,148 million or 54 cents per share compared with a net income of $7,916 million or $1.76 per share in the year-ago quarter. Excluding pension and other post-employment benefit liabilities, adjusted earnings of 71 cents per share were at par with the Zacks Consensus Estimate.
Quarterly total revenue increased 6.8% year over year to $33,192 million, beating the Zacks Consensus Estimate of $32,532 million. The year-over-year upside was driven by increased demand for Verizon Wireless, FiOS and Strategic enterprise services.
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 |
-1.1% |
+16.4% |
|
IBM |
-2.3% |
-19.9% |
|
GS |
-2.7% |
+4% |
|
MMM |
+2.6% |
+14.3% |
|
BA |
+3.1% |
+4.5% |
|
CVX |
+0.7% |
-17.8% |
|
UTX |
+5.6% |
+8.6% |
|
XOM |
+0.8% |
-10.3% |
|
MCD |
-2.4% |
-5.6% |
|
CAT |
-0.9% |
-21.1% |
Next Week’s Outlook
Stocks have enjoyed a short but upbeat week with ECB action helping them chalk up gains. Both the expectation and ultimate announcement of monetary stimulus helped the blue-chip index move upward. Overall, international events have largely contributed to the bullish sentiment this week. This includes Bank of Canada’s surprise rate cut.
However, declining oil prices is a cause for worry. Meanwhile, earnings have boosted investor sentiment, but for results from the financial sector. The week was largely devoid of economic reports except data from the housing sector. Several important reports are lined up for release in the days ahead. These include data on consumer confidence, durable orders, housing and GDP numbers. Any positive indications on this front would provide a much needed boost to stocks going forward.
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