Dow 30 Stock Roundup: Pfizer Drug Trial Dents, P&G Ups Dividend

Swarup Gupta

The Dow experienced an extremely volatile week due to the erratic behavior of momentum stocks. An important pharma component dragged down the index on Monday following confusion over trial results.

The blue chip index moved up marginally the next day before garnering spectacular gains on Wednesday following positive indications from the Fed. However, another major decline on Thursday meant that during the first four trading days, the Dow lost 0.50%.

Last Week’s Performance

The Dow dropped 0.9% last Friday, dragged down by declines in momentum and bio-tech stocks. The day’s initial gains, largely a result of encouraging monthly jobs data, were eroded by the end of the trading session. The U.S. Bureau of Labor Statistics said total nonfarm payroll employment had risen to 192,000 in March. The unemployment rate remained flat at 6.7% due to a surge in people entering the labor force.

For the week, the Dow ended 0.5% higher. The Federal Reserve Chairwoman Janet Yellen’s comment that the central bank will maintain its “extraordinary commitment” to support the economy for some more time had helped benchmarks at the beginning of the week. The bullish mood was supported by encouraging manufacturing data and better-than-expected new-vehicle sales for March.

This was followed by Wednesday’s encouraging private-sector hiring numbers and increase in factory orders for the month of February. However, benchmarks ended lower on Thursday as investors adopted a cautious approach ahead of Friday’s nonfarm payroll data.

The Dow This Week

Pharma major Pfizer Inc. (PFE) weighed heavily on the blue chip index on Monday. The day’s economic report on consumer credit hardly influenced investors and they are now focusing on first quarter earnings reports. Pfizer led the decline among the Dow components. Shares of the company were down almost 3% after its breast-cancer drug palbociclib did well in clinical trials but the overall survival benefits was not yet revealed to be statistically significant. The Dow had dropped 1% by the close.

The Dow gained 0.1% on Tuesday as benchmarks snapped a three-day losing streak and ended higher after bargain-hunting investors bought momentum and technology stocks. Utilities stocks also jumped after investors favored less-volatile stocks. However, bio-tech stocks failed to recover. Investors also focused on earnings results as the day was devoid of any major economic data.

Markets finished in the green on Wednesday, primarily boosted by encouraging minutes from the central bank’s policy meeting. Minutes from the Federal Open Market Committee’s (:FOMC) March meeting indicated that the central bank may not hike the key lending rates in the first half of 2015. The central bank also opined that the 6.5% unemployment rate target to determine the timing of the interest rate hike is outdated. The Dow gained substantially, moving up 1.1%.

The blue chip index dropped 1.6% on Thursday dragged down by declines in momentum and bio-tech stocks. Discouraging Chinese trade data also unnerved investors. Concerns over the strength of the Chinese economy rose after the Chinese government reported that March exports fell 6.6% from a year earlier and imports plunged 11.3% in the same period. The day’s positive economic data on unemployment benefits failed to restrict the day’s loss.

Components Which Moved the Index

Procter & Gamble’s (PG) board of directors recently announced a 7% increase in its quarterly dividend — the 57th consecutive year of dividend hikes for the consumer products giant. The quarterly dividend was increased from 60.15 cents to 64.36 cents per common share. The quarterly dividend will equal an annual dividend of $2.58 which will yield 3.2% annually.

The higher quarterly dividend will be payable on or after May 15, 2014 to common stockholders of record on close of business as on Apr 25. The current dividend hike is the same as last year’s.

Chevron Corp. (CVX) released first-quarter 2014 interim update covering the first two months of the quarter. Chevron expects to post lower first-quarter earnings than the previous quarter. Huge currency conversion expenses along with charges associated to asset impairment are expected to hamper results. However, excluding these charges, first-quarter profit is anticipated to match the Oct-Dec 2013 figure. 

In upstream activities, total production is expected to fall below the year-ago quarter level. However, the output will likely remain in line with the fourth-quarter 2013 number. In the downstream sector, the refining margin in the U.S. west coast is expected to decrease. However, the reverse is projected for the Gulf Coast.

Merck & Co. Inc. (MRK) presented additional data from an ongoing phase II study on its once-daily, all-oral hepatitis C virus (:HCV) combination regimen – MK-5172 (100 mg, a NS3/4A protease inhibitor) and MK-8742 (50 mg, a NS5A replication complex inhibitor). The additional data was presented at the annual meeting of the European Association for the Study of the Liver (:EASL).

As per interim data from the study, sustained virologic response (:SVR) rate after 12 weeks of treatment was 98% in the MK-5172/MK-8742 arm as compared to 94% in patients who received MK-5172/MK-8742 plus RBV. The MK-5172/MK-8742 and RBV combination showed an SVR rate of 83% at 8 weeks of treatment. Investors reacted positively to the news with the stock moving up 3.74% on Wednesday.

Microsoft Corp’s (MSFT) purchase of Nokia’s (NOK) handset division overcame an important hurdle after Chinese authorities gave the green signal for the pending deal. The transaction was supposed to be closed by the end of March but got delayed due to regulatory and legal obstacles from certain antitrust authorities in Asia. However, it is expected to be complete by the end of this month.

McDonald's Corp. (MCD) recently announced its decision to exit the Ukrainian peninsula of Crimea, which has been at the centre of a political crisis. The company decided to close its three restaurants in the region, citing the suspension of financial and banking services in the country. Reportedly, the company apprehends a backlash following a Russian politician’s call for the closure of all its restaurants in Russia.

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 dropped 1.48%.

Ticker

Last 5 Day’s Performance

6 month performance

V

-5.96%

+7.98%

IBM

+1.43%

+5.11%

GS

-6.47%

-2.51%

MMM

-2.10%

+10.98%

BA

-4.47%

+4.80%

CVX

-2.08%

-0.83%

UTX

-4.58%

+7.06%

XOM

-1.30%

+11.31%

MCD

+1.99%

+4.95%

CAT

-0.80%

+19.45%

Next Week’s Outlook:

Positive indications from the Fed were the sole bright spot during a week largely devoid of economic data. Next week will be quite different, with several key economic reports lined up. These include data on retail sales, industrial production, housing starts and leading indicators.

These reports could play an important role in providing direction to markets which have been extremely volatile in recent times. At the same time, earnings results of bellwether stocks could also influence market movements. Indices also remain sensitive to external signals, borne out by the reaction to China’s trade data.

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