The Dow suffered a dismal week due to a continual slump in oil prices as well as external headwinds. The Dow slipped on Monday and erased Tuesday’s initial gains to close in the red as oil price slide continued to dent investor sentiment.
The Dow slumped on Wednesday, after the World Bank cut its outlook for global economic growth. Ultimately, the Dow declined for the fifth-straight session on Thursday following the Swiss National Bank’s surprise move to drop its long-standing exchange rate of the Swiss franc against the euro. The Dow has lost 2.3% during the first four trading days.
Last Week’s Performance
Last Friday, stocks snapped two straight days of solid gains to end in the red on Friday. Decline in average hourly wages dented investor sentiment despite strong nonfarm payroll data. Average hourly earnings contracted 0.2% in December, contrary to the consensus estimate of 0.2% rise. This contraction in wage growth also had a negative impact on labor force participation rate. Civilian labor force participation rate declined 0.2% to 62.7% in December.
Separately, after gaining for two-consecutive days, the price of WTI crude oil declined 0.9% on Friday to $48.36 per barrel. Moreover, the price of Brent crude oil dropped 1.7% to $50.11 a barrel. The Dow declined almost 1%.
Over the week, the Dow declined 0.5%. The slump in oil prices due to an increase in production of oil and strengthening of the dollar was one of the main factors that dragged down benchmarks. Moreover, disappointing economic data including ISM Services Index and factory order report dampened investor confidence. Bill Gross’ dismal outlook for 2015 also dented investor mood.
However, encouraging jobs data and recovery in oil prices boosted markets on Wednesday and Thursday. Moreover, possibility of additional stimulus measures in the Eurozone also limited losses. Fed minutes’ assurance that the central bank will remain “patient” before hiking interest rates also added to the bullish sentiment.
The Dow This Week
The Dow lost more than 0.5% on Monday as oil price slide continued to dent investor sentiment. The price of WTI crude oil plunged almost 5% to $46.07 per barrel, witnessing its lowest level since 2009. Moreover, the price of Brent crude oil dropped 5.7% to $47.43 a barrel. More than 75% of the Dow components ended in the red.
Separately, The Goldman Sachs Group, Inc. (GS) reduced its three-month outlook for the price of WTI crude oil from $70 per barrel to $41 a barrel. The company also downgraded its outlook for the price of Brent crude oil to $42 per barrel from $80 a barrel. Major oil suppliers showed no sign of reducing oil production, which in turn had a negative impact on the energy prices. Major oil suppliers showed no sign of reducing oil production, which in turn had a negative impact on the energy prices.
Benchmarks ended in negative territory for the third-straight session on Tuesday. Stocks erased solid initial gains as another slump in oil prices weighed on energy shares. In the opening hours, markets were boosted by Alcoa Inc.’s (AA) encouraging earnings results. Alcoa reported fourth quarter adjusted earnings of 33 cents, beating the Zacks Consensus Estimate of 26 cents. Quarterly revenues of $6,377 million also came ahead of the Zacks Consensus Estimate of $6,023 million.
Moreover, news from the Eurozone raised investor confidence. The European Central Bank (ECB) may opt for bond-purchasing program to boost the region’s economy in their next meeting, which is due on Jan 22. Moreover, it was reported that ECB is expecting a legal verdict in European Court regarding the QE program on Wednesday, which will clarify progress of the program.
Despite these positives, the Dow declined around 400 points from its day’s high yesterday, witnessing its biggest intraday swing since Oct 15. The blue-chip index lost nearly 0.2%.
The Dow slumped on Wednesday, losing almost 1.1% after World Bank cut its outlook for global economic growth. It now expects global GDP to grow at a pace of 3% in 2015, compared to previously projected rate of 3.4% growth. The World Bank also forecasted that the global economy will grow at a rate of 3.3% in 2016, which is also lower than its earlier estimate of 3.5%. The bank also said world GDP will slow down further in 2017 and grow only 3.2%.
Moreover, disappointing fourth quarter earnings results from JPMorgan Chase & Co. (JPM) dented investor sentiment. JPMorgan Chase was the worst performer among the Dow components on Wednesday. Shares of the company declined 3.5%. However, energy prices rebounded on Wednesday to post solid gains.
Benchmarks ended in negative territory for the fifth-straight session on Thursday following the Swiss National Bank’s surprise move to drop its long-standing exchange rate of the Swiss franc against euro. The Swiss National Bank (SNB) decided to remove its three-year old policy of maintaining minimum exchange rate of 1.20 Swiss francs to 1 euro. Following the announcement, Swiss franc soared more than 20% against euro and jumped 25% against dollar to 0.8900 franc per dollar.
Moreover, the number of initial claims for the week ending Jan 10 was the highest witnessed since Sep 2014. Additionally, the Producer Price Index experienced its biggest drop in December in around three years.
Also, another decline in oil prices dragged down energy shares on Thursday. The prices of WTI crude oil and Brent crude oil declined 4.8% and 2.1% to $46.25 a barrel and $47.67 per barrel, respectively.
Components Moving the Index
JPMorgan Chase & Co.’s fourth quarter earnings came in below the year-ago quarter’s earnings per share of $1.30. However, company’s adjusted fourth quarter earnings per share of $1.45 beat the Zacks Consensus Estimate of $1.30.
The biggest bank of the U.S., in terms of assets, faced after-tax legal expenses of $990 million during the quarter, which had a considerable negative impact on bank’s earnings result. The bank also reported fiscal 2014 earnings per share of $5.29, missing the Zacks Consensus Estimate of $5.42.
Managed net revenue of $23.6 billion in the quarter was down 2% from the year-ago quarter. It also compared unfavorably with the Zacks Consensus Estimate of $23.7 billion. Managed non-interest revenues declined 6% from the year-ago quarter to $12.2 billion.
AT&T, Inc. (T) has entered into partnerships with three large automobile manufacturers – Tesla Motors, Inc. (TSLA), Chevrolet and Audi, in a bid to drive the expansion of the connected vehicle technology popularly known as M2M (machine-to-machine) communications. This technology captures the advantage of next-generation data speeds, ranging from voice-controlled apps to highly developed diagnostics and aims to considerably augment the infotainment experience.
Notably, with the introduction of the 2015 A3 family, AT&T will work in partnership with Audi and provide the drivers with the fastest in-vehicle 4G LTE data connectivity.
McDonald's Corp. (MCD) will lay off 63 workers at its corporate headquarters in Illinois, according to Reuters. The retrenchment — part of the restaurant’s initiatives to reduce costs by $100 million — will begin from Feb 16. Through this strategy the quick service restaurant targets to increase revenues and improve the declining traffic trends across some of its key markets.
McDonald's plans to use around $100 million in cost savings to improve digital and other restaurant platforms to support its long-term growth. The new restaurant platforms reportedly includes "Create Your Taste," which are likely to be implemented in around 2,000 McDonald's restaurants in 2015.
The Boeing Company (BA) signed an agreement with Symantec Corp. (SYMC), under which the latter agreed to purchase technology rights from the former’s cybersecurity business unit, Narus Inc. Per the deal, Symantec will also hire 65 engineers and data scientists from Boeing’s Narus security division.
Narus specializes in manufacturing Internet-filtering software and network monitoring technologies that are used widely by intelligence agencies and the U.S. government. It was acquired by Boeing in 2010 with expectations of expanding its revenue stream.
Merck & Co. Inc. (MRK) disclosed plans to accelerate the submission of regulatory applications for its key drugs in the oncology and hepatitis C virus (HCV) programs. Merck continues to work on expanding Keytruda’s label further and is currently planning to seek FDA approval for an advanced non-small cell lung cancer (NSCLC) indication in the middle of this year.
Currently, Merck is evaluating Keytruda for more than 30 types of cancer alone and in combination with other therapies. Merck plans to seek FDA approval for its oral, once-daily combination HCV treatment, grazoprevir/elbasvir in the first half of 2015.
Microsoft Corp. (MSFT) has launched two smartphones, Microsoft Lumia 435 and Lumia 532. Both the handsets will be available in February in the Middle East, Africa, India, other Asia and Europe. Microsoft hasn’t announced any U.S. plans as of now.
Prices will vary according to the market but it is estimated that Lumia 435 and Lumia 532 will be available for 69 euros and 79 euros before taxes and subsidies, respectively. Lumia 435 is Microsoft’s first 400-series phone and the most affordable Lumia so far. Both the phones will support 3G networks.
ExxonMobil Corp. (XOM) is progressing with its plan to spend about C$25 billion ($21 billion) on a project relating to the export of liquefied natural gas (LNG) from Canada.
The company is not discouraged by the fall in crude prices. According to an environmental review application submitted last week to the British Columbia provincial government, ExxonMobil, along with Canadian affiliate Imperial Oil Ltd., is contemplating the construction of a facility on the Pacific Coast. The facility would initially liquefy and export 15 million metric tons of LNG per year.
Exxon’s WCC LNG Project Ltd. is one of the 18 export facilities proposed for Canada’s Pacific Coast. The facility will be used for cooling gas from British Columbia for shipment to the Asian markets by tankers.
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 2.8%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
-4.4% |
+14.1% |
|
IBM |
-4.6% |
-18% |
|
GS |
-8.1% |
+5.5% |
|
MMM |
-2.7% |
+10.1% |
|
BA |
+0.2% |
+0.8% |
|
CVX |
-8.8% |
-20.6% |
|
UTX |
-1.3% |
-1.1% |
|
XOM |
-4.1% |
-13.1% |
|
MCD |
-2% |
-8.9% |
|
CAT |
-8.2% |
-23.2% |
Next Week’s Outlook
Stocks have been traversing rough waters of late, following internal weaknesses as well as external headwinds. Oil prices are continuing to weigh on indices and no respite seems in sight. Despite the occasional increase, this factor is likely to dampen sentiment in the near future.
Additionally, external factors have also come into play this week. This ranges from the reduction in the Swiss Franc’s exchange rate versus the euro to a reduction in global growth forecast.
But what is of particular concern is a slew of disappointing domestic economic data. This week’s reports on jobless claims and PPI have sent out bearish signals. Several important reports are lined up for release in the days ahead. This includes data on CPI, industrial production and housing. Any positive indications on this front would provide a much needed boost to stocks going forward.
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