The Dow has had a largely positive week, despite certain headwinds. The blue-chip index declined on the first trading day of a holiday-shortened week, following mixed economic numbers. However, the blue chip index jumped on Tuesday following encouraging manufacturing data from the U.S and Asia.
The Dow closed at a record high for the second successive day on Wednesday, even after a listless trading session. During the first three trading days, the Dow has gained 0.89%.
Last Week’s Performance
The Dow gained a meager 0.03% on Friday as technology and small-cap stocks ensured a positive finish for benchmarks. However, gains were kept in check following a drop in DuPont’s (DD) stock. Markets also received positive economic data on consumer sentiment. The University of Michigan and Thomson Reuters’ final reading of consumer sentiment increased to 82.5 in June, from last month’s earlier estimate of 81.2.
For the week, the blue-chip index declined 0.6%. St. Louis Fed president James Bullard’s comments on the timing of a rate-hike pushed stocks lower. The Federal Reserve official mentioned that a rise in interest rates may happen sooner than anticipated as unemployment rate falls and inflation increases at a faster pace.
Additionally, escalating tension in Iraq had a negative impact on benchmarks. Separately, oil refinery stocks declined after The Wall Street Journal reported that the Commerce Department loosened the nearly 40-year ban on crude oil exports. The industrial sector was also adversely affected by initial opposition from the French government over General Electric Company’s (GE) efforts to acquire Alstom SA’s energy assets
Among the positives, broadcaster stocks rose on Wednesday after Supreme Court ruled in their favor over start-up online-video service provider, Aereo Inc.
On the economic front, positive economic data on existing home sales, new single-family home sales and an improvement in consumer confidence failed to drive benchmarks higher. At the same time, investors ignored disappointing reports, including the biggest quarterly contraction of the U.S. economy since early 2009.
The Dow This Week
Benchmarks finished mostly lower on Monday following mixed economic numbers. A gauge of pending home sales numbers hit its highest level in eight months in May. However, Chicago PMI numbers dropped more than expected. The blue-chip index ended in the green for the month and the quarter. All benchmarks also notched up gains during the first half of 2014. The Dow declined almost 0.2%.
For the month, the blue-chip index gained 0.7%. Gains in technology, media, financial and small-cap stocks during the month helped benchmarks end in the green. Optimism over the Federal Reserve’s commitment to continue with the low interest rate environment for “considerable time” also helped benchmarks move up.
In addition to this, President Barack Obama’s decision to refrain from sending in ground troops to Iraq and European Central Bank’s stimulus measures in an effort to boost Eurozone’s recovery had a positive impact on the benchmarks. Investors were also encouraged by upbeat domestic economic data.
New deals, such as those between The Hillshire Brands Co. (HSH) and Tyson Foods, Inc. (TSN), and Merck & Co. Inc. (MRK) and Idenix Pharmaceuticals Inc. (IDIX), lifted investor sentiment.
For the second quarter, the Dow gained 2.2%. The blue-chip index has now recorded gains in five out of the last six quarters. Investors received better-than-expected corporate earnings results during the quarter. Most economic indicators were also on the positive side.
For the first half of 2014, the Dow increased 1.5%. During the first half, airline, pharmaceuticals and utilities stocks gained the most despite harsh winter weather, drop in first-quarter GDP and decline in Treasury yields.
The blue chip index jumped 0.8% on Tuesday after economic data showed manufacturing activity picked up in U.S and Asia. The Institute for Supply management reported June PMI of 55.3%, lower than May’s reading of 55.4%.
However, factory output expanded for the 13th successive month. Gains in health-care, technology and consumer discretionary sectors also propelled the Dow to close at a record high. Upbeat U.S. auto sales in June also boosted investor sentiment.
Benchmarks ended Wednesday’s listless trading session little changed despite upbeat private sector hiring numbers. Investors refrained from betting ahead of the nonfarm payroll data for June scheduled for release on Thursday. Markets also kept an eye on Federal Reserve Chairwoman Janet Yellen’s comments on financial stability.
The blue-chip index traded in the narrowest range this year but still closed at a record level for the second straight day. In fact, the Dow closed at a record level and the thirteenth time this year, gaining 0.1%.
Components Moving the Index
Nike Inc. (NKE) gained approximately 3% in after-hours trading last Thursday, following the company’s better-than-expected fourth-quarter and fiscal 2014 results.
The official sponsor of The FIFA World Cup 2014 reported earnings of 78 cents per share for the fourth quarter, which increased 3% year over year and surpassed the Zacks Consensus Estimate by a couple of cents.
Results were driven by an impressive top line, improvement in gross margin and moderately lower average share count. This was partly offset by higher selling, general and administrative (SG&A) expenses due to marketing investments prior to the soccer World Cup, increased tax rate and negative effect of currency rates.
AT&T Inc. (T) will offload its long-held interest in Mexican telecommunication giant, America Movil S.A.B. de CV (AMX), to its majority shareholder Carlos Slim for around $5.6 billion. The announcement pushed up America Movil’s stock price by 5% last Friday on the NYSE. The deal also marks the end to the 24-year long relationship between AT&T and America Movil.
AT&T presently holds 8.3% of market capitalization and 24% voting rights of America Movil. However, AT&T is divesting its stake to avoid conflict of interest with America Movil as the former currently seeks to get hold of satellite television operator DIRECTV (DTV) in a deal worth $48.5 billion.
DuPont has lowered its earnings forecast for second-quarter and full-year 2014 blaming weak performance in its core agriculture business. The DE-based company’s shares slid as much as around 8% in after-hours trading last Thursday following the guidance cut.
DuPont sees adjusted earnings in the second quarter to be modestly below $1.28 per share earned a year ago. Based on that, it has reduced its adjusted earnings guidance for 2014 to $4.00-$4.10 per share from $4.20-$4.45 per share expected earlier. Analysts polled by Zacks currently expect earnings of $1.46 and $4.30 per share on an average for the second quarter and 2014, respectively.
JPMorgan Chase & Co. (JPM) has announced that it will be vending off its Corporate Dealing Services business to U.K.-based The Equiniti Group.
The Corporate Dealing Services business offers all types of share-based remuneration schemes. Further, as part of the deal, JPMorgan will partner Equiniti and continue to serve its corporate broking customers. The deal is expected to be closed by Aug 2014 end.
General Electric Company recently inked a definitive agreement to acquire Monsal – a U.K.-based renewable technology business, for an undisclosed amount.
Monsal is one of the leading players among innovative renewable companies. This acquisition will enhance General Electric’s wastewater treatment product offerings and provide energy efficient solutions to its customers.
Wal-Mart Stores, Inc. (WMT) has slashed the prices of Apple, Inc.’s (AAPL) iPhone 5 models in its stores. Customers can now get the 16 GB iPhone 5s for $99 with a two-year contract, while the 16 GB iPhone 5c will now cost only $29 with a two-year contract. Prices were slashed further from the already-discounted prices of $149 for 5s and $49 for 5c.
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 0.82%.
Last 5 Day’s Performance
6 Month Performance
Next Week’s Outlook
Markets have received mixed economic data through this week. While a decline in Chicago PMI numbers dragged benchmarks lower, the expansion of the manufacturing sector has resulted in significant gains. Clearly, today’s non-farm payrolls report is the most important release for the week. The fact that investors have refrained from betting big before its release is evidence of this fact.
However, benchmarks have continued to achieve record highs regardless of these concerns. International factors also seem to have taken the backseat. But domestic data and comments by Fed officials have played a crucial role in providing direction to stocks. Going forward, markets may continue to witness a steady uptrend. Gains made across the previous month, quarter and the first half of the year is a clear indicator of this fact.
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