The Dow had a short but successful holiday-shortened week. The blue-chip index moved up on Monday boosted by gains in technology and telecom shares, which offset losses in energy and healthcare shares. The Dow closed above the 18K mark for the first time ever on Tuesday banking on better-than-expected revision to third quarter GDP numbers. The blue-chip index edged up marginally on Wednesday’s abbreviated trading session banking on the lowest initial claims numbers in seven weeks and gains in biotechs. The Dow has gained 1.3% during the first three trading days.
Last Week’s Performance
Stocks ended a turbulent week on a positive note as investors continued to welcome Fed’s decision to remain ‘patient’ before raising the interest rate from near zero level. Moreover, rebound in oil prices helped energy shares post solid gains. The Dow posted its biggest three-day gain on Friday since late 2011, increasing 4.3%. On Friday, volume was also higher than usual on a "quadruple witching" day. The blue-chip index gained almost 0.2%.
For the week, the Dow gained 3.1% posting its biggest weekly gain since October. Benchmarks ended in the green for the week as the Fed issued encouraging statements regarding economic growth in the U.S. and a rate hike. The Fed mentioned it will wait for further improvement in the labor market and inflation rate before lifting the rate from a record low.
The Fed forecasted that the unemployment rate will reach 5.2% to 5.3% by the end of 2015. Fed Chairwoman Janet Yellen also added that Fed officials firmly believe that the inflation rate will achieve the Fed’s target rate of 2%. Moreover, encouraging jobless claims data and positive earnings reports helped benchmarks post solid gains.
Benchmarks experienced record gains in the last three trading sessions after a nosedive in Russian ruble raised worries about the global economy on Tuesday. Ruble slumped despite Russian central bank hiking interest rates to 17%. Decline in technology and consumer discretionary shares also resulted in some losses.
The Dow This Week
The Dow gained 0.9% on Monday to post a record close for the 35th time this year. Benchmarks settled in the green for the fourth-straight session boosted by gains made by large-cap technology stocks. Gains in technology and telecom shares offset losses in energy and healthcare shares. Energy shares were hit hard due to slump in oil prices.
Meanwhile, existing home sales dropped 6.1% to a seasonally adjusted annual rate of 4.93 million in November from October’s downwardly-revised figure of 5.25 million. This was also less than the consensus estimate of 5.18 million. Existing home sales slowed to its lowest pace in six months in November.
Stocks mostly settled in the green on Tuesday banking on better-than-expected revision to third quarter GDP numbers. The Dow closed above the 18K mark for the first time ever and notched up a record closing level for the 36th time this year. The blue-chip index gained 0.4%.
Positive third quarter GDP data lifted markets on Tuesday. Third quarter GDP increased 5%, more than second quarter’s growth in real GDP by 4.6%. Separately, the University of Michigan and Thomson Reuters’ final reading of consumer sentiment was at 93.6 in December, more than the consensus forecast of a decrease to 93.2.
Strong GDP data was able to offset a slew of disappointing economic reports. Personal income increased 0.4% in November, less than the consensus estimate of a rise by 0.5%. New home sales decreased 1.6% in November to seasonally adjusted annual rate of 438,000 from revised October’s figure of 445,000. Sales of new homes dropped at the slowest pace in four months in November.
Additionally, durable orders in November decreased 0.7%, contrary to the consensus estimate of a rise by 3.9%. The drop in November’s durable orders followed a decline of 0.1% in October. November’s durable orders dropped as The Boeing Company’s (BA) airplane orders failed to materialize.
The Dow edged up 0.03% on Wednesday’s abbreviated trading session banking on the lowest initial claims numbers in seven weeks and gains in biotechs. The blue-chip index hit a record high for the 37th session.
Initial claims were at 280,000 in the week ending Dec 20, down 9,000 from the previous week's unrevised 289,000. Initial claims were below the consensus estimate of 293, 000.
However, crude prices slumped again and dragged the energy sector lower. Benchmark U.S. crude oil dropped 2.3% to $55.84 a barrel. Brent Crude oil was down to $60.24, a decline of 2.4%
Components Moving the Index
AT&T Inc. (T) has approved an increase of 2.2% in the company’s quarterly cash dividend of its common stock to 47 cents per share from 46 cents paid earlier. On an annualized basis, the dividend payment amounts to $1.88, up from $1.84. The increased dividend is payable on Feb 2, 2015 to shareholders of record at the close of business as on Jan 9.
This is AT&T’s 31st straight annual increase and reflects the company’s strong cash position and solid balance sheet.
Also, despite projected capital expenditure of $21 billion, the company expects strong free cash flow of $11 billion in 2014. For 2014, AT&T expects revenue growth of 3–4% year over year coupled with stable margin growth.
The Procter & Gamble Company (PG) recently announced the sale of its Camay and Zest soap brands to U.K.-based consumer goods giant Unilever, plc (UL) outside of North America and the Caribbean. The deal, whose financial details were undisclosed, will allow P&G to focus better on fewer core strategic brands. The sale is expected to close in the first half of 2015.
Along with the brands, the consumer giant will sell its Talisman manufacturing facility in Mexico. Once the transaction is over, 170 employees associated with the unit will be transferred to Unilever.
The Goldman Sachs Group, Inc. (GS) completed the sale of its metals warehouse unit – Metro International Trade Services LLC, which was initiated in May. The metal warehousing biz has been vended to a subsidiary of Switzerland-based investment firm – Reuben Brothers.
The terms of the deal were undisclosed under which Reuben Brothers will take over around 30 Detroit warehouses of Metro.
Though Metro has been contributing to Goldman’s revenues, the company does not consider it as a strategic fit anymore. Notably, potential buyers approached the company.
Goldman bought Detroit-based Metro back in 2010 for around $540 million. Metro is engaged in running warehouses for storage of metals traded on the London Metal Exchange (LME).
The Boeing Company (BA) received a commitment from Air China for the purchase of 60 737 airplanes including a mix of Next-Generation 737 and 737 MAX. The entire deal is valued at more than $6 billion at list prices.
The business partnership between Boeing and China’s flag carrier dates back for more than two decades. At present, Boeing airplanes constitute nearly 50% of the active fleet of Air China. Airliners prefer a less divergent operating fleet as this strategy allows the operators to get better after-sales services from the manufacturers. This consequently lowers their operating costs.
E. I. du Pont de Nemours and Company (DD) has declared that it will resolve some pending patent infringement lawsuits against Monsanto Company (MON) in the U.S. District Court in St. Louis. Similar lawsuits were also filed by Monsanto against DuPont. All of them will be dismissed by both the companies as per the terms of the settlement.
DuPont had claimed that Monsanto breached its patent seed processing technology while a Monsanto had alleged that DuPont had infringed certain Monsanto seed chipping patents. The authorities at Monsanto are of the view that the dismissal of all lawsuits by both the companies will help them to focus better on developing new solutions for farmers.
DuPont and Monsanto had signed a series of technology licensing agreements back in Mar 2013. The current litigations as well as other pending lawsuits in the U.S. District Court in St. Louis have been dismissed by both the parties. As of date, they have no other litigation against each other.
Microsoft Corporation (MSFT) entered into an Amended Settlement and License Agreement with VirnetX Holding Corp. (VHC), which has resulted in the settlement of pending patent infringement issues between the two parties.
With the agreement, the original Settlement and License Agreement that was signed between the two companies back in 2010 gets extended. Microsoft has agreed to pay $23 million to VirnetX to end the dispute. Certain terms and conditions of the previous license also get modified and restated. The move is basically intended to prevent further disputes between the two companies.
The lawsuit was filed last year by VirnetX where it alleged patent infringements related to Microsoft’s Skype unit, which allows instant messaging and Internet calling. VirnetX had accused Microsoft of infringing six of its patents with Skype.
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 4.4%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
+4.1% |
+28% |
|
IBM |
+4.2% |
-10.5% |
|
GS |
+3.7% |
+16.3% |
|
MMM |
+6.3% |
+16.2% |
|
BA |
+8.7% |
+3.3% |
|
CVX |
+10.9% |
-13.5% |
|
UTX |
+4.3% |
+0.7% |
|
XOM |
+8.3% |
-8.2% |
|
MCD |
+3.5% |
-7.7% |
|
CAT |
+3.6% |
-13.6% |
Next Week’s Outlook
This holiday-shortened week has been a particularly good one for stocks. Indexes received a boost from last Friday’s encouraging comments from the Fed regarding economic growth in the U.S. and a rate hike. Stocks received another fillip from strong GDP data which was able to offset a slew of disappointing economic reports. Meanwhile, gains from technology stocks have also helped broader markets.
Heading toward the end of the year, the only lingering concern is plunging oil prices. This decline has led to a continual decline in energy stocks. Recent economic reports, particularly those on housing, have also been disappointing in nature. Next week features some important reports on housing and consumer confidence. Any positive indications on this front will only help stocks move higher.
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