The Dow moved downward during another holiday-shortened week marked by low volumes. The blue-chip index declined on Monday following slump in oil prices and political turmoil in Greece. The Dow took losses again on Tuesday as political turmoil in Greece continued to weigh on investor sentiment amidst low trading volumes.
The blue-chip index closed in the red on the last trading day of 2014 as disappointing economic data dented investor sentiment. The Dow has lost 2.9% during the first three trading days.
Last Week’s Performance
Last Friday, stocks moved upward as investors were enthused by the encouraging economic scenario on the domestic front. However, trading volumes remained low as most of investors were enjoying extended Christmas holiday. The Dow registered its 38th record high, gaining more than 0.1%.
At that point, the blue-chip index had finished in positive territory for seven straight trading days and also witnessed its highest seven-day gains since Nov 4, 2008. The seven-day rally was also the longest streak of gains since Mar 2013. The index also had the brightest five-day rally before Christmas since 1991.
For the week, the Dow gained 1.4%, marking its second consecutive weekly increase. Encouraging GDP data released last Tuesday boosted investor confidence. According to the “third” estimate by the Bureau of Economic Analysis, GDP increased at an annual rate of 5.0%.
Moreover, encouraging initial claims data and consumer sentiment data also helped benchmarks end in the green. The University of Michigan and Thomson Reuters’ final reading of consumer sentiment was at 93.6 in December. Initial claims declined for the fourth consecutive week and hit a seven-week low.
However, home sales data including new home sales and existing home sales were disappointing. Moreover, the oil prices continued to decline which negatively impacted energy shares throughout the week.
The Dow This Week
The Dow lost 0.1% on Monday after slump in oil prices and political turmoil in Greece dented investor mood. Greece is expected to head to polls in early 2015 after the country’s parliament rejected Prime Minister Antonis Samaras’ preferred presidential candidate in a third and final vote on Monday. This rejection means that the parliament is dissolved and Antonis Samaras is asking for a snap election to be held on Jan. 25.
The blue chip index also had the narrowest trading session on Monday since the day before Thanksgiving Day. The Home Depot, Inc. (HD) and JPMorgan Chase & Co. (JPM) gained the most among the Dow components. Shares of Home Depot and JPMorgan Chase went up 0.8% and 0.7%, respectively. On the other hand, IBM Corp. (IBM) turned out to be its biggest laggard. Shares of the information technology service provider declined 1.1%.
Benchmarks ended in the red on Tuesday as political turmoil in Greece continued to weigh on investor sentiment amidst low trading volumes. Moreover, disappointing home price data also dented investor sentiment. The benchmarks witnessed their 12th lightest trade volumes this year.
The Dow finished below the 18k mark for the first time after crossing the same on Dec 23, losing 0.3%. The S&P/Case-Shiller's 20-city composite index reading showed that home prices in the U.S. declined 0.1% in October, registering its second-straight month of decline. Additionally, energy shares continued to decline on Tuesday despite a recovery in oil prices.
Markets ended in the red on the last trading day of 2014 as disappointing economic data dented investor sentiment. Moreover, another decline in oil prices also weighed on energy shares on Wednesday. The Dow declined 0.9%.
However, major benchmarks finished in the positive territory in December and for 2014. The Dow registered gains for the sixth consecutive year. The blue-chip index hit record highs 38 times last year. The Dow gained 0.3% during December, banking on encouraging domestic economic data including an impressive third quarter GDP report. Besides GDP data, reports on retail sales, consumer confidence and initial claims numbers were also encouraging.
The blue-chip index gained 7.5% during 2014, banking on a positive economic scenario in the U.S. The domestic economy has outperformed the key global economies for a major part of the year. Majority of economic data including GDP and labor market reports were encouraging. GDP has gradually recovered from a 2.9% contraction in the first quarter to 5% growth in the third quarter.
Recovery in the overall economic environment allowed the US Federal Reserve to terminate the third round of bond repurchases. In a recently released statement, the Fed decided to be “patient” before hiking rates. The latest statement helped the benchmarks to register best gains in 2014. (Read: 3 Best Performing Dow Stocks in 2014)
Components Moving the Index
The Goldman Sachs Group, Inc.’s (GS) conflict with Portuguese bank, Banco Espirito Santo, over $835 million of debt repayment took a new turn following Bank of Portugal’s altered stance on the transfer of debt. Goldman cautioned that it may contest Bank of Portugal’s decision not to transfer the Banco Espirito debt to Novo Banco – the “good bank” that was created from the split of Banco Espirito in August.
The $835 million debt was moved to Novo Banco and hence Novo Banco stood liable for meeting the obligation. Per Goldman, “On August 11, 2014, a senior representative of the Bank of Portugal explicitly confirmed to us in writing the transfer of these obligations. In addition, Novo Banco also confirmed in writing that Oak Finance had been transferred as one of its liabilities.”
According to an Oak Finance prospectus, Novo Banco was supposed to start repaying the Oak Finance loan with an initial amount of $52.9 million on Dec 25.
However, Novo Banco stated in a Dec 23 regulatory filing that the Bank of Portugal has reversed the decision of transferring the Oak Finance liability to Novo Banco.
This reversal of decision on the part of Bank of Portugal is likely to inflict huge losses upon Goldman and its clients. Per a Wall Street report, the worth of the bad bank’s assets are projected to be less than $100 million in liquidation.
The Boeing Company (BA) and its primary competitor Airbus Group NV will jointly bid for the development of a new fighter aircraft for South Korea along with Korean Airlines, their local partner. The group of three will recommend that Boeing’s F/A-18E/F Super Hornet be used as the base design for the country’s KF-X development program.
Boeing has partnered with Airbus in order to avoid U.S. government barriers on technology which the aircraft major can offer to foreign countries. The company is partnering with Airbus so that its European counterpart can provide stealth technology for the aircraft. According to Aviation Week magazine, Boeing has been prevented from doing so.
The proposal is intended to be an “economical alternative” to an indigenous effort from Korea Aerospace Industries to develop a new fighter with technical assistance from Lockheed Martin Corp. (LMT).
In another development, according to Reuters, Boeing has delivered 111 787 Dreamliners in 2014. The company has exceeded its own forecast of 110, following the delivery of Eithad Airway’s first 787-9 aircraft. The company has declined to comment on these numbers at this time.
Microsoft Corporation (MSFT) is reportedly working on a new Internet browser. Code-named “Spartan,” the new browser will accompany Internet Explorer 11 and ship with Windows 10. Microsoft’s new operating system is expected to be launched during the second half of 2015.
The intention behind offering a new browser is that it will be a lighter alternative to Internet Explorer and will support third-party extensions. Secondly, this will be a marketing makeover for the older Web browser and replace it altogether once it is phased out.
In another development, the Kinect for Windows sensor will no longer be sold by Microsoft. According to a Microsoft spokesperson, the sensor will be discontinued at some point in 2015. Exact dates during which the sensor will be phased out will be announced later.
Microsoft launched the Kinect for Windows 2 in October 2014. The new device is priced at $199 and allows users to gain more value from the device. The company now wants to concentrate on the new sensor.
Verizon Communications Inc. (VZ) has paid in excess of $1.3 million in order to settle a lawsuit regarding an allegation that it overcharged the state of Massachusetts. Details regarding the lawsuit were disclosed by the state’s Attorney General Martha Coakley.
Coakley said the settlement has led to the resolution of a lawsuit which was pending in Hampshire Superior Court. Per the terms of the settlement, Verizon will have to pay additional amounts to towns, cities and other parties which have been impacted by alleged overbilling.
Verizon has a contract with the state of Massachusetts to provide its services to government bodies at predetermined rates. According to Coakley, the company billed some of these customers at higher rates than those specified by the contract.
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 0.1%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
+0.2% |
+22.4% |
|
IBM |
+1.2% |
-13.9% |
|
GS |
+0.3% |
+16.2% |
|
MMM |
-0.7% |
+13.7% |
|
BA |
+3% |
+1.4% |
|
CVX |
-0.6% |
-14.1% |
|
UTX |
-0.5% |
-0.8% |
|
XOM |
-1.3% |
-8.8% |
|
MCD |
+0.5% |
-7.2% |
|
CAT |
-0.2% |
-16.2% |
Next Week’s Outlook
The Dow closed 2014 after a correction, primarily a result of international factors. Political uncertainty in Greece added to the familiar headwind of declining oil prices. Additionally, certain disappointing domestic economic reports led to losses for the blue-chip index on Wednesday. Overall, the holiday-shortened week witnessed low volumes and a significant lack of enthusiasm among traders.
Given strong domestic economic fundamentals, the year-end correction may only be a fleeting phenomenon. Several important economic reports are lined up for release next week. Starting with manufacturing and construction data to be released today, reports on vehicle sales, factory orders, services and the unemployment rate are slated for release. If most of these reports are favourable in nature, stocks could soon resume their ascent in the days ahead.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment