The blue-chip index hit record highs twice this week and ended in the green on all days but for Tuesday. Bullish ISM Manufacturing data pushed the Dow upward on Monday. The blue-chip index declined on Tuesday due to investors’ concerns about the outcome of the ECB meeting. Encouraging services sector data helped the Dow make a comeback on Wednesday.
Ultimately, the blue-chip index hit a record high once again on Thursday, powered by ECB stimulus measures. During the first four trading days, the Dow has gained 0.55%.
Last Week’s Performance
The Dow gained a mere 0.1% on Friday following mixed economic data. While reports on personal income and Chicago PMI numbers were positive, personal consumption expenditure dropped in April for the first time this year. However, benchmarks ended in the green for the week and posted their biggest monthly gains since February.
The Dow closed in the green during the holiday-shortened week, moving up 0.7%. Merger and acquisition activity in the food industry, better-than-expected initial claims and expectations that ECB will reduce key lending rates drove benchmarks higher for the week. Encouraging economic numbers on manufactured durable goods, improved consumer confidence and an increase in the leading measure of U.S. home prices also lifted investor sentiment.
The blue-chip index gained 0.8% during the month of May. Gains in small-cap and high-growth stocks drove benchmarks higher for the month. Additionally, gains in consumer discretionary and energy stocks helped benchmarks finish in the green. A new deal between Keurig Green Mountain, Inc. (GMCR) and The Coca-Cola Company (KO) also provided optimism.
Federal Open Market Committee’s (:FOMC) indication that central bank will remain flexible when it comes to raising short term interest rates also boosted investor sentiment. Additionally, Federal Reserve Chairwoman Janet Yellen indicated key lending rates would remain low. Russian President Vladimir Putin’s willingness to discuss measures to ease the Ukrainian crisis and dovish comments from ECB President Mario Draghi were some of the other positives for the month.
Most economic indicators were on the positive side during May. This includes small-business sentiment, ISM Services Index and initial claims numbers. March’s retail sales data was revised upward, adding to the optimism.
The Dow This Week
Benchmarks scored record highs yet again on Monday following encouraging ISM manufacturing data. Benchmarks had opened in the red owing to erroneous manufacturing data, but they rebounded once a correction was made which showed the index had grown at its fastest pace this year.
The ISM reported May PMI had increased 0.5 percentage points from April’s reading of 54.9% to 55.4%. The blue-chip index closed at a record level for the sixth time this year, gaining 0.2%.
The Dow lost 0.1% on Tuesday as investors awaited the outcome of Thursday’s ECB meeting and the monthly US jobs report on Friday. Encouraging reports on factory orders and upbeat monthly car sales numbers failed to boost investor sentiment. Tuesday’s losses caused the blue-chip index to retreat from the previous day’s record highs.
Investors shrugged off dismal labor market data to focus on an encouraging services sector report on Wednesday. A report from Automatic Data Processing, Inc. (ADP) showed private sector hiring in May increased at the slowest pace in four months. However, the ISM Services Index increased in May, touching the highest level since August 2013. The Dow erased the day’s initial losses to move up by 0.1%.
The Dow gained 0.6% on Thursday, closing at a record level for the seventh time this year. Other benchmarks also notched up record highs on Thursday following the announcement of stimulus measures by the ECB. The measures are intended to boost Eurozone’s recovery. The central bank reduced its key interest rates and lowered its refinancing rate. The ECB also cut the deposit rates to minus 0.10%, thereby becoming the first central bank to have a negative deposit rate.
Components Moving the Index
UnitedHealth Group Inc. (UNH) has hiked its quarterly dividend payout by 34% to 37.5 cents per share. This affirms the U.S. health insurer’s commitment to pump up its shareholders’ returns. Shareholders listed on the company’s books as of Jun 16 will receive the increased dividend on Jun 25.
The dividend hike comes on the back of UnitedHealth’s strong balance sheet with moderate leverage and its ability to generate significant cash flows. The last concluded quarter saw a cash flow of $1.4 billion, up 34% year over year.
DuPont (DD) has won a deal to divest its surface care business to construction solutions provider LATICRETE for an undisclosed price. The transaction, which is subject to regulatory clearances and other closing conditions, is expected to be completed in late-June 2014.
Following the takeover, LATICRETE will merge StoneTech, Stone Care and Paver Armor Pro branded products with its existing offerings that are already placed in professional and retail channels globally.
3M Company's (MMM) note issuance of up to $1.1 billion of unsecured debt was assigned an Aa2 rating by Moody's along with a stable outlook. Moody’s also assigned an Aa2 rating to the company’s refreshed medium-term note (MTN) program. The unsecured notes are split between maturities of 5 and 30 years.
Aa2 is an investment grade rating, indicating high quality obligations with very low credit risk. The ratings are consistent with 3M's current Aa2 senior unsecured rating and Aa2 unsecured MTN program rating.
General Electric Co. (GE) has been entrusted with the responsibility of building critical infrastructure related to the railway and energy sectors in Angola by the Export-Import Bank (Ex-Im) of the U.S.
According to Reuters, the strategic effort is likely to enable the second-biggest oil producer of Africa to rebuild the transport, electricity and communications networks that were ravaged by the 27-year civil war that ended in 2002. The deal financed by Ex-Im entails General Electric to supply $650 million of energy equipment and $350 million worth of railway machinery to Angola.
JPMorgan Chase & Co. (JPM) has been sued by the city of Los Angeles over discriminatory lending practices. In a case filed in the U.S. District Court for the Central District of California, the city of Los Angeles is seeking unspecified damages from JPMorgan owing to its engagement in discriminatory mortgage practices since 2004.
The banking major has been accused of denying mortgages to the minority borrowers on the same terms as others and also at times of providing them with loans that were beyond their means to repay.
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 1.06%.
Last 5 Day’s Performance
6 Month Performance
Next Week’s Outlook
This has been one of the best weeks for the Dow in recent times. The blue chip index has hit record highs twice, pushed upward for disparate reasons. Manufacturing and services sector data has been bullish. Additionally, investors have eagerly welcomed the ECB’s stimulus measures. If Friday’s employment report lives up to expectations, it could add to markets’ optimism.
Next week has some important economic reports lined up. This includes retail sales and initial claims data. But what is of greater significance is whether the impact of ECB’s stimulus measures will spill over into next week. These factors will possibly determine market direction going forward.
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