The Dow moved lower during a holiday shortened week, dragged down by disappointing holiday sales results, the oil price slump and ECB’s lower-than-expected monetary stimulus. The index declined on Monday, dragged down by declines in consumer and healthcare stocks.
The index posted its biggest increase in almost two weeks on Tuesday led by gains in healthcare shares. The index suffered losses on Wednesday, dragged down by declines in energy and utility shares. The index moved lower on Thursday, losing 1.4%, after the European Central Bank’s (ECB) smaller-than-expected monetary stimulus failed to boost investors’ sentiment. The Dow has declined 1.8% during the first four trading days.
Last Week’s Performance
Last Friday, the Dow lost 0.1% following a decline in consumer discretionary and energy shares. Consumer discretionary stocks took a beating on Monday due to decline in retailers’ shares. Crowds were thin at shopping malls during the early hours of Black Friday and Thanksgiving evening.
Shoppers responded cautiously to early holiday discounts and harsh weather also had a negative impact on the turnout. Markets closed three hours earlier on Friday, with trading volume remaining modest.
The Walt Disney Company DIS was the biggest drag on the blue-chip index. Shares of the media company fell almost 3% after it reported that ESPN sports network lost 3 million subscribers in the fiscal year ended Oct 3.
Energy shares also declined on Friday due to a drop in oil prices. A stronger dollar and concerns about abundant supply of oil were cited to be the reasons behind this decline in oil prices. Prices of WTI crude oil and Brent crude oil dropped 3.2% and 2.9% to $41.71 a barrel and $44.86 per barrel, respectively.
For the week, the blue-chip index declined 0.1%.The index slipped 0.2% on Monday as investors refrained from placing big bets. On Tuesday, the index rebounded, gaining 0.1% as jump in energy shares offset heightened geopolitical tensions and mixed economic data. The index increased marginally, gaining only 0.01% amid a flurry of economic data on Wednesday, the last full trading day of the week. Markets were closed on Thursday for the Thanksgiving Holiday.
The Dow This Week
The index declined 0.4% on Monday, dragged down by declines in consumer and healthcare stocks. While investors weighed the discouraging brick-and-mortar stores sales results during the holiday shopping weekend, decline in biotech stocks had a negative impact on the healthcare sector.
Decline in consumer shares dragged benchmarks into negative territory on Monday. A National Retail Federation (NRF) survey showed that spending at brick-and-mortar stores were less compared to online shopping during the Thanksgiving weekend. Shares of brick-and-mortar stores including Wal-Mart Stores Inc. WMT decreased 1.8%.
Meanwhile, the Pending Home Sales Index increased 0.2% to 107.7 in October. Separately, the Institute for Supply Management-Chicago noted that Chicago Business Barometer decreased to 48.7 in November from October’s reading of 56.2.
The Dow gained 0.3% during the month of November. Benchmarks ended in the green for the month, buoyed by gains in the financial and energy sectors. Encouraging third quarter earnings report from companies including Wal-Mart Stores and Home Depot HD also had a positive impact on benchmarks.
Merger and acquisition news also boosted investor sentiment. Strong auto sales data and better-than-expected reading of ISM Services Index helped benchmarks to finish the month in the green. Additionally, benchmarks gained after minutes from last month’s Fed meeting confirmed that “most participants” were open to a rate hike in December.
The index rose almost 1% on Tuesday, posting its biggest increase in almost two weeks led by gains in healthcare shares. Key stocks from the sector including Pfizer Inc. PFE and Merck & Co. Inc. MRK increased 2.6% and 2.9%, respectively.
The ISM manufacturing index declined from October’s 50.1% to 48.6% in November, in contrast to the consensus estimate of a rise to 50.4%. However, investors ignored weak manufacturing data and focused on expectations that the ECB will expand its stimulus measures when policymakers meet on Thursday.
Construction spending increased 1% in October to $1,107.4 billion from September’s revised figure of $1,096.6 billion. Meanwhile, U.S auto sales in November increased to 18.19 million from 17.2 million a year ago, according to Autodata. End-of-year holiday promotions helped U.S. auto sales to top 18 million for three straight months for the first time ever.
The index lost 0.9% on Wednesday, dragged down by declines in energy and utility shares. Report on a mass shooting in southern California also negatively impacted all the three major indexes. Energy shares declined due to a drop in global oil prices. U.S. government data revealed a 10th straight weekly increase in U.S. oil supplies, which eventually had a negative impact on global oil prices.
While the U.S. crude oil prices settled below $40 for the first time since August, the Brent crude oil plummeted to an almost seven-year low. Dow components Exxon Mobil Corporation XOM and Chevron Corporation CVX dropped 2.9% and 2.4%, respectively.
Meanwhile, in a speech to the Economic Club of Washington, Federal Reserve chair Janet Yellen expressed her confidence in the state of the U.S. economy. A strong private sector employment report also raised hopes of an interest rate hike this month. Utility stocks took a beating on Wednesday since they tend to underperform in a higher interest rate environment.
The index moved lower on Thursday, losing 1.4%, after ECB’s smaller-than-expected monetary stimulus failed to boost investors’ sentiment. The ECB extended its asset purchasing program of 60 billion euro a month until March 2017 from September 2016. However, the ECB didn’t increase the size of the monthly purchases to the extent many investors were looking for.
The ECB also announced that it had trimmed its deposit rate to minus 3% from minus 2%, while keeping the lending rate unchanged at 0.05%. The ECB’s move to lower its negative deposit rate came in at the low end of expectations. Disappointing stimulus measures pushed the euro to a one-month high versus the dollar.
On the domestic front, Fed Chair Janet Yellen again expressed confidence that the U.S. economy will grow modestly over the next year or two. The ISM Services Index decreased to 55.9% in November from October’s reading of 59.1%. Initial claims increased 9,000 to 269,000 in the week ending Nov 28.
Components Moving the Index
The Boeing Co. BA won an indefinite-delivery/indefinite-quantity contract, worth $134 million, for providing sustainment support for its E-4B fleet. The contracting activity is Air Force Life Cycle Management Center, Tinker Air Force Base, OK.
Per the contract, Boeing will provide program and supply chain management, field service representatives, aircraft depot and engine maintenance and overhauls. Work is scheduled to be complete by Dec 30, 2016 and will be performed in Oklahoma City and San Antonio, TX.
Apart from this, Boeing secured four contracts from the U.S. Navy totaling $63.8 million. One of these contracts, worth $22.8 million, involves the procurement of F/A-18E/F and EA-18G aircrew training device concurrency Technical Directive List – 5 H12 System Configuration Set/Operational Flight Program.
The Goldman Sachs Group, Inc. GS has filed a patent application with the U.S. Patent & Trademark Office (USPTO) – Cryptographic Currency For Securities Settlement – for a new cryptocurrency called SETLcoin.
The patent application revealed that Goldman’s technology offers a virtual multi-asset wallet representing traditional securities and cash account for an individual, investor, or trader. The wallet has technology to generate, control, and store SETLcoins, for the purpose of exchanging assets such as stocks, bonds and cash or cash equivalents through peer-to-peer network.
Usually a trader trades securities by meeting at an exchange with cash for security and then the related settlement between parties occurs after much delay, sometimes after several days since the transaction. However, Goldman’s technology facilitates settlement at a much faster pace and minimizes risk.
United Technologies Corporation UTX unit Pratt & Whitney inked a historic contract with the Israeli Ministry of Defense (“IMOD”) to provide support to the Israeli Air Force — marking the longest-term, most comprehensive performance-based logistics contract for its fighter engines to date.
Under the fleet management program (“FMP”) contract, Pratt & Whitney will ensure 100% daily propulsion readiness for the whole Israeli fleet of F-15I and F-16I aircraft for the next 15 years. From Jan 1, 2016, Pratt & Whitney will deliver full propulsion sustainment support — which covers item repair management, material forecasting and provisioning of operational, intermediate and depot-level spare parts — for Israeli Air Force’s fleet of F100-PW-229 engines.
Verizon Communications Inc. VZ has announced the availability of the world's first Cat1 LTE network features Internet of Things (IoT) applications. This is ideal for use in cases that were earlier designed for 2G. It thus aims to fill in the void in 2G network.
The new offering will service cheap, low-bandwidth applications like tracking and monitoring solutions and is economical as well. Notably, a Cat1 LTE confine upload speeds to 10 Mbps, reduces the cost of modems and slashes power demand, allowing low-priced, connected devices to operate on the cellular network instead of only on Wi-Fi or Bluetooth.
JPMorgan Chase & Co.’s JPM 2015-end bonus pool for its traders will be kept almost unchanged from 2014, per a Bloomberg report. The move comes even after increased compliance costs and new regulations in the banking sector, which is likely to put pressure on the bank’s weakened peers.
Though JPMorgan’s plans may change depending on its trading performance in December, top managers of the bank were informed about its initial decision. The bank’s total compensation costs (including salaries and benefits) were $10.4 billion for 2014, which was 3.6% lower than the prior year. The trading and banking division had 49,384 employees as of Sep 30, around 4% lesser than the previous year.
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 1.9%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
GS |
-3.3% |
-11.1% |
|
MMM |
-2.9% |
-3.6% |
|
IBM |
+0.4% |
-18.2% |
|
BA |
-2.6% |
+1.2% |
|
AAPL |
-3.5% |
-11.5% |
|
UNH |
+1.8% |
-2.8% |
|
UTX |
-3.5% |
-20.1% |
|
HD |
+0.6% |
+15.7% |
|
TRV |
-3.9% |
+10.2% |
|
CVX |
-0.1% |
-13% |
Next Week’s Outlook
The Dow has taken significant losses this week due to a mix of domestic and international factors. Holiday brick and mortar sales and a slump in crude prices caused by record domestic inventories were the primary factors on the domestic side. Meanwhile, the ECB’s lower-than-expected stimulus dampened investor sentiment.
Meanwhile, the Fed Chair continued to express optimism about the state of the economy. Domestic economic data represented a mixed picture, with construction spending and auto sales being the major positives. The most crucial piece of data likely to play a major role in the Fed’s rate hike decision is to be released today. November’s official jobs data is likely to determine the Fed’s call on rates. It may also determine the fate of stocks in the week ahead.
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