The Dow experienced a slightly volatile but overall positive week. The Dow posted solid gains on Monday after weak jobs report raised hopes of a delay in interest rate hike. Stocks lost all their day’s gains during the closing hours on Tuesday on apprehensions about the first quarter earnings results.
The blue-chip index ended Wednesday’s volatile trading session with modest gains after Fed minutes hinted at a possible rate hike this year. The Dow moved upward on Thursday, helped by gains in energy shares due to rise in oil prices. The Dow has gained 1.1% during the first four trading days of the week.
Last Week’s Performance
Last Thursday, the Dow gained 0.4% following an encouraging initial claims report. Initial claims declined 20,000 for the week ending Mar 28 to 268,000. This was the lowest level in nine months and also exceeded the consensus estimate of 288,000. Moreover, the 4-week moving average also decreased 14,750 from previous week’s level to 285,500.
Additionally, trade deficit for February declined following a fall in level of both imports and exports. Imports experienced the highest month-over-month decline since the great recession. In contrast, new orders for manufactured goods increased 0.2% in February.
Energy shares also ended in positive territory, despite drop in oil prices. Crude oil prices took a beating after investors feared the agreement on Iranian nuclear deal may lead to oversupply of oil in the world market.
The blue-chip index advanced 0.3% during the holiday-shortened week. Stocks posted gains following China central bank governor’s indications about additional monetary stimulus boosted investor sentiment. Deal news in the domestic healthcare sector also aided benchmarks.
Among the negatives, weak economic data adversely affected benchmarks. Disappointing jobs and manufacturing data dampened investor sentiment. Separately, continuous drop in oil prices are also putting a lot of pressure on energy companies. Weakness in healthcare and industrial shares dragged benchmarks significantly lower on Tuesday.
The Dow This Week
Stocks posted solid gains on Monday after weak jobs report raised hopes of a delay in interest rate hike. Last Friday’s nonfarm payroll data showed job additions slumped to a 15-month low in March. Job additions fell below 200,000, bringing an end to the unbroken run of 12 such successive monthly gains. Additionally, data for both January and February was revised downward. Meanwhile, U.S. service sector growth rate also touched a three-month low last month.
Adding to the bullish sentiment, New York Fed President William Dudley said the timing of hiking rates “will be data dependent and remains uncertain because the future evolution of the economy cannot be fully anticipated.” Energy shares gained as oil prices moved north. Expectations on Iran taking longer time to increase oil exports and anticipation that rise in U.S. crude inventories is slowing down boosted oil prices on Monday. Saudi Arabia hiked prices for oil exports to Asia, also boosting oil prices. The Dow gained 0.7%.
The blue chip index declined a meager 0.03% on Tuesday. Stocks lost all their day’s gains during closing hours on apprehensions about first quarter earnings results. Fears that a stronger dollar and weaker oil prices may affect first quarter earnings dampened investor sentiment. Reverses in the final moments resulted in markets snapping a two-day winning run.
The Dow had gained as much as 102 points during the day, but lost the gains and closed in the red. However, deal news between FedEx Corp. FDX and TNT Express helped limit the day’s losses. Investors also remained focused on Tuesday’s jobs data. The number of job openings on the last business day of February was 5.133 million, the highest level since Jan 2001. Consumer credit increased by $15.6 billion in February, exceeding analysts’ expectation of an increase by $14 billion.
Stocks ended Wednesday’s volatile trading session with modest gains after Fed minutes hinted at a possible rate hike this year. Minutes from the FOMC meeting on Mar 17-18 stated officials were divided on the timing of raising interest rates. While “several” officials favored a rate hike in June, others opined a rate hike isn’t necessary until later this year as strong dollar and drop in oil prices will keep inflation rate lower.
The minutes also showed Fed officials believed an increase in core price inflation or wage inflation isn’t required for hiking federal funds rate. On the other hand, energy shares took a beating due to slump in oil prices. Crude oil prices tanked following the largest weekly build in U.S. crude oil inventory level since Mar 2001. The blue-chip index gained almost 0.2%.
The Dow increased 0.3% on Thursday, helped by gains in energy shares due to rise in oil prices. The day’s gains were limited as investors remained concerned about first quarter earnings results. A stronger U.S. dollar may negatively impact multinationals’ earnings results while overall weakness in oil prices will weigh on energy shares. Oil prices moved north on Thursday, banking on strong German economic data and uncertainty over Iranian nuclear deal.
Meanwhile, the first quarter earnings season kicked off with Alcoa Inc. AA and Bed Bath & Beyond Inc. BBBY reporting disappointing results. Initial claims increased 14,000 to 281,000 in the week ending Apr 4. The rise was less than the consensus estimate of initial claims increasing to 290,000. US wholesale inventories rose 0.3% in February after increasing 0.4% in January.
Components Moving the Index
The Boeing Company’s BA first-quarter 2015 commercial deliveries jumped over 14% year over year.
Boeing delivered 184 airplanes in the quarter, up approximately 14.3% year over year. The Next Generation 737 model continued to be the pillar of Boeing’s strength in the commercial airplane sector with deliveries of 121 airplanes, followed by its 787 Dreamliner model with 30 deliveries, pumping out at 10 a month. Boeing also delivered 24 777s during the first quarter 2015, flat with the year-ago period.
Meanwhile, Boeing’s deliveries in the defense and space business numbered 42 in the first quarter 2015 compared with 46 in the comparable period last year.
United Technologies Corp. UTX unit UTC Aerospace Systems recently inked an agreement with the U.S. Naval Undersea Warfare Center for an undisclosed amount. The five-year indefinite delivery/indefinite quantity contract entails its Engineered Polymer Products (EPP) team in Jacksonville, FL, to provide high frequency acoustic windows for the submarines of the U.S. Navy til 2020.
The latest contract, which covers acoustic windows for four classes of the U.S. naval submarines, is an extension of the long-serving ties of the EPP with the U.S. Navy that originated in 2003.
Merck & Co. Inc.’s MRK experimental once-daily combination chronic hepatitis C virus (HCV) treatment, grazoprevir (NS3/4A proteaseinhibitor)/elbasvir (NS5A replication complex inhibitor) received two new Breakthrough Therapy designations from the FDA.
The designations are for the treatment of patients suffering from chronic HCV genotype 4 (GT4) infection and chronic HCV genotype 1 (GT1) infection in patients with end-stage renal disease on hemodialysis.
Pfizer Inc. PFE and Merck KGaA announced that they have finalized an agreement to co-promote the latter’s anaplastic lymphoma kinase (ALK) inhibitor, Xalkori, for the treatment of ALK-positive advanced non-small cell lung cancer (NSCLC).
The companies will co-promote Xalkori in two phases – the first phase will begin in the second and third quarters of 2015 in the U.S., Canada, Japan and five countries in the EU (France, Germany, Italy, Spain and the UK), while the second phase will commence in 2016 in China and Turkey.
In 2015, Merck KGaA will receive a reimbursement related to its co-promotion of Xalkori, apart from profit on sales of the product in a 20:80 ratio (20% of the profit will belong to Merck KGaA Pfizer will get the rest), starting 2016. The term of this co-promotion agreement will last through Dec 31, 2020 in the U.S., Canada and the five EU countries. In China and Turkey, Xalkori co-promotion will begin on Jan 1, 2016 and last through Dec 31, 2021. Pfizer will be responsible for reporting Xalkori sales in countries where the drug will be co-promoted with Merck KGaA.
Intel Corp. INTC, tired of losses from mobile, has decided that it will no longer report mobile earnings separately. Instead, it will merge its Mobile and Communications Group with its PC business into a single new division called the Client Computing Group.
The change in the financial reporting structure will be effective from the first quarter of 2015 itself, which the company is set to report on Apr 14. The reorganization will allow Intel to improve operational efficiency as it counters competition from Arm Holdings ARMH, a U.K.-based company, to improve its position in mobile devices, a market dominated by chips based on designs from Arm Holdings.
The mobile division has lost more than $7 billion since 2012. Morgan Stanley MS said the division lost $4 billion in 2014. In fact, Intel reported an operating loss of $4.21 billion in 2014, greater than a loss of $3.1 billion in 2013.
Apple AAPL Watch is set to hit the stores on Apr 24, but it seems Switzerland will still have to wait. Reportedly, Apple may not be able to market its newest product due to trademark disputes. Swiss watch maker Leonard Timepieces has a trademark that prevents any company from using the word "apple" in association with watches and other jewelry.
The patent expires on Dec 5 this year, but will hinder Apple Watch’s worldwide launch. However, the Swiss watch maker did not confirm the patent dispute officially. But this is unlikely to hinder Apple Watch sales as customers can buy it online or import it from neighboring countries.
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 1.4%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
GS |
+3.7% |
+7.5% |
|
MMM |
+2% |
+20.3% |
|
IBM |
+1.2% |
-12.9% |
|
BA |
+3.1% |
+25% |
|
AAPL |
+2.7% |
+25.3% |
|
UNH |
+0.5% |
+39.6% |
|
UTX |
+0.9% |
+18% |
|
HD |
+0.7% |
+23.1% |
|
TRV |
+0.2% |
+14.3% |
|
CVX |
+2.6% |
-6.6% |
Next Week’s Outlook
This week’s trading has been affected by a variety of factors. A weak jobs report, concerns about first quarter earnings coming in under par and fluctuating oil prices have been the primary market movers. Speculation that the Fed’s rate hike decision may be delayed has helped investors. On the other hand, a weaker dollar and slump in oil prices have caused fears about earnings results.
Several signals are emerging of a short term cooling down of the economy’s growth story. At the same time, the earnings season has had a disappointing start. This is why the focus may turn squarely to economic data.
Next week features a number of crucial reports indicating the health of the economy. This includes data on retail sales, industrial production and housing. Any positive indicators on this front will help to boost stocks in the days ahead.
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