The Dow suffered losses during a holiday shortened week, weighed down by multiple factors. Stocks started the week in the red after the dollar gained strength, which compelled investors to park funds into safe-haven assets.
The Dow gained on Wednesday helped by gains in technology and healthcare stocks. Stocks finished in the red on Thursday, weighed down by the Greek debt crisis, a plunge in Chinese shares, mixed economic data and rate hike concerns. The Dow has declined 0.6% during the first four trading days.
Last Week’s Performance
Last week, the blue-chip index declined 0.2%. Benchmarks finished mostly in the green for the week as weaker-than-expected economic reports increased expectations of a delayed rate hike. Reports on housing, manufacturing and the labor market were discouraging.
Additionally, Fed minutes showed officials looked past a June rate hike amid slow economic growth. Fed Chicago President Charles Evans also recommended that the Fed should hold back from hiking interest rates until 2016. However, Yellen said the central bank may raise interest rates this year as she believes soft economic data will not have a lasting effect on the economy.
Separately, gains in Apple Inc.’s AAPL shares boosted the broader markets. Meanwhile, Greece’s debt crisis and rise in bond yields failed to dent investor sentiment.
The Dow This Week
Stocks started the holiday-shortened week in the red after the dollar gained strength, which compelled investors to take money out of equities and park them into safe-haven assets.
Upbeat economic data on Tuesday also fueled expectations of an increase in interest rates in the near term. Consumer Confidence Index increased to 95.4 in May from 94.3 in April. Meanwhile, sales of new single-family houses increased 6.8% in April to 517,000.
Separately, new orders for manufactured durable goods declined 0.5% to $235.5 billion in April. However, orders excluding the transportation industry increased 0.5% last month. Moreover, core capital-goods orders, which don’t include the unpredictable defense and transportation sectors gained 1% in April.
Meanwhile, concerns about Greek’s debt crisis added to the bearish sentiment. The Dow registered its biggest one day percentage decline in the last three weeks on Tuesday, slumping 1%.
The Dow gained 0.7% on Wednesday helped by gains in technology and healthcare stocks. Key technology stocks including Apple Inc., Microsoft Corp. MSFT, Verizon Communications Inc. VZ, Google Inc. GOOGL and IBM Corp. IBM increased 1.9%, 2.2%, 0.3%, 1.3% and 1.1%, respectively. While gains among chipmakers and large-cap tech companies boosted the technology sector, the healthcare sector was boosted by gains in biotech stocks.
Positive news emanating from Greece also boosted investor sentiment on Wednesday. Eurogroup members and Greek officials have started preparing a draft to avoid defaulting on the debt payment that Greece is supposed to make on Jun 5. However, a Eurogroup official said that “We are still working toward an agreement” and that no consensus was reached.
Stocks finished in the red on Thursday, weighed down by the Greek debt crisis, a plunge in Chinese shares, mixed economic data and a Fed official’s comment on the timing of a rate hike later this year.
IMF Managing Director Christine Lagarde said a lot needs to be done between Greece and its lenders before agreeing on a cash-for-reforms deal. Meanwhile, San Francisco Fed President John Williams said the Fed will likely hike the federal funds rate later this year.
Among economic data, jobless claims increased 7,000 for the week ending May 23 to 282,000. In contrast, the Pending Home Sales Index went up 3.4% to 112.4 in April. Meanwhile, a sharp drop in Chinese shares following the brokers’ move to tighten margin lending also had a negative impact on the broader markets.
Components Moving the Index
3M Company MMM unit 3M Library Systems will soon introduce a redesigned web patron to facilitate the browsing experience of users who wish to go through the 3M Cloud Library collection.
The strategic move is intended to provide readers with a powerful tool for browsing and discovering the library’s digital collection before downloading the 3M Cloud Library application. This new offering will enable users to manage their accounts, receive email notifications and customize favorite content categories.
Apple Inc.’s shares plunged 2.2% in Tuesday’s trading session, following a fire at its recently-acquired facility in Mesa, AZ. Incidentally, it occurred just a week after Apple had announced its plans to renovate the facility to a Global Command Center, powered entirely by green energy.
According to reports, the solar panels of the facility had caught fire but it was put out before it spread to other parts of the building. The cause remains unknown. However, the report stated that there were no casualties.
In Feb 2015, Apple had unveiled its plans to invest $2 billion for revamping the 1.3 million-square-feet facility. Speculations arose that the Apple-owned facility could be used as its own manufacturing facility in the U.S. to supplement output from suppliers for making its iPhones, iPads and Mac devices.
Apple is likely to benefit from sales tax savings (on electricity or natural gas) of about $1.3 million once the data center becomes operational. However, the structural damage, especially in the massive solar panels could be a bit of a setback and it isn’t clear whether Apple will still be able to start operations next year.
General Electric Company GE is likely to divest its vehicle fleet management business worth $9 billion, according to Bloomberg. Reportedly, the company is in advanced stages of negotiation with Toronto-based financial services firm Element Financial Corp.
The held-for-sale business includes leasing and fleet management of 1.4 million autos and trucks of large companies primarily in the U.S. Although GE and Element Financial have not confirmed the industry speculations, sources familiar with the proceedings expect the deal to be finalized by the end of the current quarter.
The Goldman Sachs Group, Inc. GS has set a target of $1 billion of renewable energy bond facility in a bid to ramp up investment in clean energy in Japan. For this purpose, the New York-based financial giant has established the Japan Renewable Project Bond Trust.
The move is in line with Goldman’s pledge to support renewable energy development in Japan as well as globally. Toru Inoue, Vice President in Structured Finance at Goldman Sachs, stated that the Trust will allow the company to offer attractive rates to renewable energy firms that will help them finance their growth through the capital markets.
Merck & Co. Inc. MRK and Johnson & Johnson JNJ announced that the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) has given a positive opinion in favor of expanding Simponi’s label in the EU.
Simponi is under review in the EU for the treatment of adult patients suffering from severe, active non-radiographic axial spondyloarthritis (nr-axial SpA) with objective signs of inflammation as indicated by elevated C-reactive protein and/or magnetic resonance imaging evidence. These patients have also had an inadequate response to, or are intolerant to, nonsteroidal anti-inflammatory drugs.
The favorable opinion of the CHMP will now be reviewed by the European Commission. With the CHMP issuing a positive opinion, we believe chances of Simponi gaining EU approval are high. A decision should be out in the third quarter.
In a separate development, Merck announced that the European Medicines Agency’s (EMA) Committee for Medicinal Products for Human Use (CHMP) has rendered a positive opinion in favor of approving Keytruda in the EU for the first-line treatment as well as the treatment of previously treated advanced (unresectable or metastatic) melanoma patients.
The favorable opinion of the CHMP will now be reviewed by the European Commission.
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 0.8%.
|
Ticker |
Last 5 Day’s Performance |
6-Month Performance |
|
GS |
+2.8% |
+10.7% |
|
MMM |
-1.5% |
+0.5% |
|
IBM |
-0.9% |
+5.9% |
|
BA |
-3.1% |
+5.9% |
|
AAPL |
+2.4% |
+10.8% |
|
UNH |
+0.3% |
+21.3% |
|
UTX |
-0.1% |
+6.9% |
|
HD |
-1% |
+12.9% |
|
TRV |
-0.5% |
-2.2% |
|
CVX |
-4.4% |
-5.2% |
Next Week’s Outlook
Stocks suffered losses due to a variety of factors this week. The movement of the dollar has come into play once again, as has the nature of domestic economic data. However, external factors have had a major impact on proceedings. The plunge in China shares and the prospect of a default by Greece have played the most significant role in guiding markets.
Going forward, it is likely that these factors are likely to determine market direction going forward. On the domestic front, the nature of GDP data to be released on Friday is another major factor to be taken into consideration. Some market watchers believe that a contraction may be indicated, which could dominate proceedings.
Other major economic reports scheduled for release next week include data on manufacturing, services, personal income, construction spending and unemployment. Taken together, the nature of these reports will determine the view market watchers take on a prospective rate hike. However, if most of these are positive in nature, they could help stocks return to their winning ways.
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