The Dow experienced a mixed week, gaining and losing on alternate days. The blue-chip index declined on Monday as heightened concerns about Greece’s debt negotiations continued to hurt investor sentiment. The Dow gained on Tuesday as easing concerns about Greece’s debt negotiations boosted investor confidence.
Uncertainty regarding bailout negotiations between Greece and its creditors led to losses for the blue-chip index on Wednesday. The Dow moved upward on Thursday after a ceasefire agreement between Russia and Ukraine boosted investor confidence. The Dow has gained 0.8% during the first four trading days.
Last Week’s Performance
Last Friday, the Dow declined more than 0.3% after fresh concerns about Greece’s debt negotiations offset encouraging job data. The U.S. economy created more than 200,000 jobs for the 11th consecutive month in January, its longest such stretch since 1994. Additionally, the average hourly earnings increased 0.5%. Year-on-year growth in average hourly wages came in at 2.2%.
However, it was reported that Eurozone officials asked the Greek government to apply for an extension of its bailout program by Feb 16. The current bailout program valued at $275-billion will expire on Feb 28. Meanwhile, a rise in the possibility of a rate hike in mid-2015 due to improving labor market conditions dented investor sentiment.
Over the week, the Dow gained 3.8%. Markets ended with solid weekly gains as increase in oil prices except from Wednesday boosted energy shares. Moreover, encouraging earnings results, merger and acquisition (M&A) news and auto sales data also helped benchmarks to end in positive territory. However, concerns about Greece’s debt negotiation offset some of the gains.
Domestic-made vehicle sales climbed to an annualized rate of 13.5 million banking on increase in demand for trucks and sport-utility vehicles. However, economic data including factory orders, ISM Manufacturing Index and initial claims numbers were disappointing.
The Dow This Week
Markets ended in negative territory on Monday as heightened concerns about Greece’s debt negotiations continued to hurt investor sentiment. On Sunday, Greek Prime Minister Alexis Tsipras announced that the government will not ask for extension of its bailout program from creditors.
Moreover, China’s disappointing trade data also had a negative impact on benchmarks on Monday. Exports declined 3.3% year over year in January, following a 9.7% rise in December. Moreover, the economy witnessed a 19.9% drop in January’s imports, wider than December’s decline of 2.4%. However, rise in oil prices limited some of the day’s losses. The Dow lost 0.5%.
The blue-chip index gained 0.8% on Tuesday as easing concerns about Greece’s debt negotiations boosted investor confidence. It was reported on Tuesday that the European Commission may consider extending the deadline of Greece’s bailout program by another six months. Investors took the view that this development is an important step toward a potential breakthrough for debt negotiations.
Moreover, encouraging earnings results from The Coca-Cola Company (KO) also helped markets post solid gains. Shares of Coca-Cola gained 2.8%. However, the U.S. Energy Information Administration (EIA) kept its outlook for U.S. crude production in 2015 almost flat. The EIA’s report had a negative impact on oil prices on Tuesday.
Stocks ended Wednesday’s choppy session almost unchanged as uncertainty regarding bailout negotiations between Greece and its creditors dented investor sentiment. Greek Finance Minister Yanis Varoufakis entered a meeting with the Eurozone’s finance ministers to discuss the conditions of the bailout program. Speculations arose that if Greece and its creditors fail to find any solution to the debt crisis, then “Grexit” would be a direct outcome.
Moreover, renewed worries about the Russia-Ukraine crisis also dampened investor sentiment. Meanwhile, another decline in oil prices following rise in crude inventories dragged down energy shares. However, encouraging earnings results limited losses to some extent. The Dow declined a meager 0.04%.
The Dow gained 0.6% on Thursday after a ceasefire agreement between Russia and Ukraine boosted investor confidence. The two nations agreed to enforce the agreement from Sunday. Moreover, encouraging earnings results from companies such as Cisco Systems, Inc. (CSCO) helped markets register solid gains. Shares of Cisco surged 9.4%.
A rally in oil prices also boosted energy shares. However, the lack of any agreement in Wednesday’s EU meeting on Greece came as a disappointment. Disappointing economic data on the domestic front also eroded some of the day’s gains. Retail sales declined 0.8% in January, wider than the consensus estimate of 0.4% drop. The decline was preceded by a 0.9% drop in December.
Components Moving the Index
Cisco Systems reported second-quarter fiscal 2015 earnings of 50 cents, which surpassed the Zacks Consensus Estimate of 45 cents. The adjusted earnings per share exclude one-time items but include stock-based compensation expenses.
Revenues decreased 2% sequentially but increased 7% year over year to $11.9 billion and beat the Zacks Consensus Estimate of $11.77 billion. On a year-over-year basis, products (76% of total revenue) were up 7.8% to $9.1 billion and Services (24%) rose 4.6% to $2.9 billion.
On a GAAP basis, Cisco recorded a net profit of $2.4 billion or 46 cents per share compared with $1.4 billion or 27 cents in the year-ago quarter. On a pro-forma basis, Cisco generated adjusted net profit of $2.58 billion as against $2.26 billion a year ago.
The Coca-Cola Company reported fourth-quarter 2014 adjusted earnings of 44 cents per share, which beat the Zacks Consensus Estimate of 42 cents by around 5%. Net revenue declined 2% year over year to $10.87 billion due to headwinds from currency and structural changes.
Currency headwinds hurt sales by 4% as Coca-Cola generates a significant portion of its sales overseas. Structural changes hurt revenues by 2%, at the higher end of management’s expectation of 1–2%. Adjusting for the impact of currency and structural changes, constant currency revenues increased 4%. Revenues also beat the Zacks Consensus Estimate of $10.77 billion by 1%.
Earnings declined 5% year over year as a strong dollar eroded the value of its overseas sales. Excluding the impact of currency, earnings increased 5% driven by improved organic revenues and cost-cutting efforts.
Microsoft Corp. (MSFT) made the most of investor demand for the highest-rated corporate securities and sold $10.8 billion in new bonds, making it the largest U.S. corporate debt sale so far this year and the tenth-largest issue of all time.
The debt issue was assigned an Aaa rating by leading credit rating agency, Moody’s. Microsoft had increased the size of its debt offering from $7 billion, taking advantage of attractive borrowing costs and strong demand generated due to low interest rates.
The offering included a series of bonds ranging in maturities from 5-40 years. Microsoft sold notes in six parts, including $2.25 billion of 40-year debt with a 4% coupon, as per Bloomberg. Total orders reached $37 billion as investors queued up to purchase the securities, which pushed Microsoft to resize the offering.
Pfizer Inc. (PFE) announced that it has entered into an accelerated share repurchase agreement with Goldman, Sachs & Co. (GS) whereby it will repurchase $5 billion of its common stock.
Pfizer will receive approximately 150 million shares on Feb 11, 2015, which will be repurchased under this transaction. The settlement is scheduled to occur during or prior to the third quarter of 2015.
During the settlement, Goldman may be required to deliver additional shares of common stock to Pfizer. However, under certain circumstances, Pfizer may be required to deliver shares of its common stock.
The Boeing Co. (BA) has declared the formation of a new organization – BDS Development – as part of the restructuring of its defense and space business. The move is expected to enhance product efficiency and lower costs for Boeing’s defense customers in addition to maintaining delivery schedules.
The new organization will take over six key programs that are presently managed elsewhere. BDS Development is similar in design to the Airplane Development Organization at Boeing Commercial Airplanes, which oversees the development of commercial airplanes.
The recent move to revamp its defense unit by BDS CEO Chris Chadwick has been made to keep proper track of its troubled $52 billion KC-46 aerial tanker. After several technical snags, there have been rising concerns as to whether Boeing will be able to meet the deadline of providing the U.S. Air Force with 18 KC-46 refueling planes by Aug 2017.
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 surged 4.7%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
V |
+6.2% |
+28.8% |
|
IBM |
+3.4% |
-15.4% |
|
GS |
+10% |
+10.1% |
|
MMM |
+2.2% |
+17.8% |
|
BA |
+1.8% |
+22.9% |
|
CVX |
+8.1% |
-12.8% |
|
UTX |
+4.2% |
+14% |
|
XOM |
+5.6% |
-6.2% |
|
MCD |
+2.9% |
+1.6% |
|
CAT |
+4.4% |
-19.9% |
Next Week’s Outlook
External factors have guided markets to a large extent this week. While fears over Ukraine have eased, the crisis in Greece continues to weigh on investor sentiment. Encouraging earnings have helped boost indices on most days, negating the effect of these concerns to some extent. Meanwhile, discouraging economic data has failed to impact market movement.
The volatility in oil prices remains, but this phenomenon does not seem to be having any strong impact on the direction of stocks. Going into next week, it is likely that they may continue to guide markets. Several key economic reports are scheduled for next week. This includes data on housing, inflation, industrial production and business sentiment. Positive indications on this front could help stocks move upward in the days ahead.
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