The Dow enjoyed gains and suffered losses this week, moving in tune with the tone of debt negotiations between Greece and creditors. Hopes of Greece and its creditors reaching a deal later this week helped stocks end higher on Monday. The Dow gained on Tuesday, ending higher for the second straight day as investors continued to remain hopeful of a deal between Greece and its lenders.
Markets ended lower on Wednesday after optimism over Greece’s bailout deal faded. The Dow declined 0.4% on Thursday due to declines in energy and industrial shares. The Dow has lost 0.7% during the first four trading days.
Last Week’s Performance
Last Friday, the Dow declined 0.6% following the lack of progress in bailout talks between Greece and Eurozone finance ministers. Eurozone finance ministers failed to strike a deal with Greece over the country’s bailout program. Uncertainty over Greece’s bailout program led to daily deposit outflow of around one billion euros, which eventually led to the European Central Bank (ECB) approving an emergency loan to Greece’s banking system.
Concerns about Greek debt crisis led to investors taking money out of equities and parking them in safe haven assets like Treasury bonds. Moreover, the Federal Reserve’s indication on Wednesday that it will move slowly on raising interest rates also drew money managers to buy Treasury bonds.
The blue chip index gained 0.6% over last week. Benchmarks ended higher for the week after the Fed signaled it will hike interest rates at a slower than expected pace. An overwhelming majority of Fed officials had said that the improving U.S. economy is strong enough to withstand one or two rate hikes this year.
Meanwhile, consumer prices registered their largest gain in more than two years in May, jobless claims declined to a near 15-year low and building permits increased at the fastest pace in May since 2007, boosting investor sentiment. Separately, the Nasdaq closed at a record high on Thursday, lifted by a surge in biotech stocks.
The Dow This Week
Hopes of Greece and its creditors reaching a deal later this week helped stocks end higher on Monday. Greece has submitted new fiscal proposals to avert a default. Jeroen Dijsselbloem, who chairs the Eurogroup of finance ministers, was optimistic about reaching a deal later this week after Greece submitted a new set of reform proposals to avoid the country from defaulting.
The blue-chip index gained 0.6%. European Council President Donald Tusk, who chaired an emergency summit of leaders of the 19-nation currency bloc, said Greece’s new set of reform proposals were “a positive step forward”. Additionally, sales of existing homes increased at the fastest pace in May since Nov 2009.
The Dow gained 0.1% on Tuesday, ending higher for the second straight day as investors continued to remain hopeful of a deal between Greece and its lenders. Greece’s leftwing government remains confident that the parliament will agree to the debt deal despite some backlashes from its own lawmakers.
Positive economic data added to the bullish sentiment. New home sales increased to 546,000 in May, gaining 2.2%. This was the fastest pace recorded since Feb 2008. Durable goods dropped 1.8% to $228.9 billion in May, more than the consensus estimate of a 0.9% decline. However, durable goods orders excluding defense and aircraft orders, a proxy for business investment, rose 0.4% in May.
Markets ended lower on Wednesday after recent optimism over Greece’s bailout deal later this week faded. Talks between Eurozone finance ministers and the Greek government stumbled due to major differences on Greece’s new set of fiscal proposals to avert a default. Lack of progress in Greek debt talks may lead to the country’s exit from the currency bloc. The blue-chip index declined almost 1%.
Meanwhile, the U.S. economy contracted in the first quarter at a slower pace than the “second estimate”, banking on uptick in consumer spending. According to the “third estimate” by the Bureau of Economic Analysis, GDP decreased at an annual rate of 0.2%. This was in line with the consensus estimate. The “second estimate” had forecasted GDP to have declined 0.7%. Real personal consumption expenditure was upwardly revised to 2.1% in the first quarter.
The Dow declined 0.4% on Thursday due to declines in energy and industrial shares. Energy shares fell amid drop in oil prices. Oil prices took a beating due to a recent U.S. Energy Information Administration report that showed a glut in U.S. gasoline stockpiles.
Concerns over Greek debt crisis also continue to weigh on investor sentiment. Greece and its creditors failed to reach an agreement on Thursday. Negotiations are expected to stretch into the weekend as major differences on Greece’s new set of fiscal proposals remain between the Eurozone finance ministers and the Greek government.
Investors also overlooked upbeat reports on consumer spending and labor market. Personal consumption expenditure recorded its biggest jump in May since Aug 2009. Additionally, even though initial claims increased for the week ending Jun 20, the 4-week moving average declined. Meanwhile, a new ruling by the Supreme Court on the Affordable Care Act helped healthcare stocks buck the broader declining trend.
Components Moving the Index
NIKE Inc.’s NKE quarterly earnings of 98 cents per share surged 26% year over year and surpassed the Zacks Consensus Estimate of 84 cents. Earnings growth was driven by an impressive top line, gross margin improvement, lower tax rate and reduced share count, partly offset by a rise in selling, general and administrative (SG&A) expenses. Positive results boosted Nike’s shares nearly 4% in Thursday’s after-hours trading session.
Net sales of this sportswear retailer advanced about 5% to $7,779 million in the fourth quarter and beat the Zacks Consensus Estimate of $7,746 million. On a currency neutral basis, sales rose 13%. The company’s NIKE Brand recorded 13% revenue growth on a currency neutral basis, to $7.4 billion.
Earnings of the athletic apparel and shoe powerhouse for fiscal 2015 came at $3.70 per share which was 25% higher than the fiscal 2014 earnings of $2.97 and a penny ahead of the Zacks Consensus Estimate of $3.56.
The company’s top line surged 10% to $30,601 million in fiscal 2015. On a currency neutral basis, sales jumped 14% and also came ahead of the Zacks Consensus estimate of $30,582 million.
Verizon Communications Inc. VZ has successfully completed its acquisition of AOL Inc., a major player in the digital content and online advertising space. The company bought all outstanding shares of AOL common stock for $50.00 per share in cash. The deal is valued at around $4.4 billion.
Moreover, Verizon now owns AOL’s tech sites, TechCrunch and Engadget, and The Huffington Post. Further, AOL’s Chief Executive Officer Tim Armstrong, who has been associated with the company since 2009, has also retained his position post the takeover.
The Walt Disney Company DIS has hiked its annual dividend by 15% to $1.32 per share, to be payable semiannually henceforth. The first semi-annual dividend of 66 cents, covering the first half of fiscal 2015, will be paid on Jul 29 to shareholders of record on Jul 6.
This is the second hike in the last six months. In Dec 2014, Disney had increased its annual dividend by 34% to $1.15 per share as against 86 cents per share paid in Jan 2014.
IBM Corporation IBM recently announced its partnership with Box, Inc. BOX for cloud analytics technology. As per the new deal, both the company’s will integrate their products and services to develop new solutions for the enterprise segment. The targeted verticals will include financial services, health care, law and engineering that are witnessing increased demand for cloud data.
As per the agreement, Box will utilize IBM’s content management, security, analytics and social tools, while IBM will integrate Box capabilities in its enterprise email system — IBM Verse — and its social collaboration platform — IBM Connections.
Further, both the companies will work toward developing content management tools and also use Box technology for IBM MobileFirst for Apple AAPL iOS apps. In addition, IBM Bluemix, the company’s open-source cloud platform will also integrate with Box APIs (application programming interfaces) for the development of new applications.
Pfizer Inc. PFE entered into an agreement with GlaxoSmithKline GSK, under which it will acquire the latter’s quadrivalent meningitis ACWY vaccines, Nimenrix and Mencevax, in a deal valued at about $130 million (€115 million).
Glaxo agreed to sell these vaccines in order to satisfy regulatory conditions as mandated by the European Commission and other regulatory bodies in the context of the three-part inter-conditional transaction related to its Consumer Healthcare, Vaccines and Oncology businesses with Novartis NVS completed earlier this year.
Under the deal, Glaxo acquired Novartis’ Vaccines business (excluding influenza vaccines), including meningitis vaccines Menveo and Bexsero, for $5.25 billion in cash plus up to $1.8 billion in milestone payments along with royalties.
3M Company MMM recently announced an agreement to acquire Capital Safety – leader in fall protection equipment and services from KKR- a private equity firm for $2.5 billion (including debt and net of cash acquired). The transaction is expected to be funded through cash and close in the third quarter of 2015.
The strategic move by 3M is to strengthen its Personal Safety business, which currently provides respiratory and hearing protection solutions for workers. Post completion, the transaction is expected to be dilutive to 3M’s earnings by 4 cents per share in the first 12 months. Excluding one-time items the transaction is expected to be accretive to earnings by 12 cents per share over the same 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 remained nearly flat
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
GS |
-0.2% |
+8.6% |
|
MMM |
-1.3% |
-6.6% |
|
IBM |
-0.5% |
+2.6% |
|
BA |
-0.3% |
+8.5% |
|
AAPL |
+0.3% |
+13.8% |
|
UNH |
+4% |
+19.1% |
|
UTX |
-3.6% |
-3.1% |
|
HD |
+1.5% |
+8.4% |
|
TRV |
-1.7% |
-8.5% |
|
CVX |
-1.5% |
-13.3% |
Next Week’s Outlook
The crisis in Greece has dominated proceedings through the week. Stocks have gained on the first two days following expectations that a deal would come through. However, the lack of agreement on reform proposals resulted in losses over the next two days. Hectic negotiations are expected to continue over the weekend.
Going forward, stocks may well be tied to the fortunes of Greece. But for Tuesday, positive economic data has had a limited impact on stocks. Several key economic reports are scheduled for release next week. This includes data on home sales and prices, consumer confidence, manufacturing, construction, factory orders and June’s employment data. Positive news on this front could help stocks return to their winning ways in the days ahead.
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