Dow 30 Stock Roundup: Apple Apologizes for iPhone Issue, Disney's The Last Jedi Crosses $1B Mark
The Dow started the year on a strong note, gaining over three successive sessions. Expectations of strong market performance in 2018 boosted the broader markets and consequently the index over the first two trading days. On the third day of the holiday shortened week, the index finished in the green riding on strong employment data. Moreover, economic reports from China and the Eurozone were also bullish.
Last Week’s Performance
The Dow lost 0.5% on the final trading session of 2017 following a broad-based sell-off. Additionally, a report highlighted that North Korea was had received fuel supplies from Russia on several occasions in the last few months, per two senior Western European security sources. This in turn raised concerns of possible geopolitical tensions in coming days, which in turn contributed to Friday’s late sell-off.
During the month of December, the Dow increased 1.8%, registering nine straight months of gains for the first time since 1959. Over last year, the index climbed 25.2% posting its best yearly increase since 2013. The Dow also notched its 71st record close in 2017, the highest number recorded in a year.
The Dow This Week
Markets were closed on Monday owing to the New Year Holiday. The index gained 0.4% on Tuesday. Optimism that markets’ performance would remain strong in 2018 contributed to these gains. Anti-government rallies in major oil exporter and OPEC member and recent crude supply cuts by Russia and OPEC countries had a positive impact on oil prices.
Bullish sentiment toward oil prices was reflected in both WTI and Brent crude prices during the day. Early on Tuesday, WTI crude price reached $60.74, its highest intraday settlement since June 2015. Moreover, Brent crude price settled at its intraday high of $67.29, its best since May 2015.
The index gained 0.4% on Wednesday due to continuing optimism over strong market performance in 2018. Additionally, gains in chipmakers and energy stocks had a positive impact on investor sentiment.
The ISM manufacturing index rose from 58.2% in November to 59.7% in December and reached its highest settlement in the last two years. The US Census Bureau of the Department of Commerce reported construction spending of $1.257 trillion in November, up 0.8% from downwardly revised October figure. This is its highest level on record.
The index gained 0.6% on Thursday following solid job additions in U.S. private sector and significant rise in business activity in China and Europe. U.S. private employers added 250,000 jobs in December, higher than analysts’ expectations of around 195,000 jobs, according to Automatic Data Processing, Inc. ADP. China's Caixin China General Services Business Activity advanced from 51.9 in November to 53.9 in December, reaching its highest level since August 2014.
Moreover, per IHS Markit’s survey data, Purchasing Managers’ index, which measures business activity for the Eurozone increased from 57.5 in November to 58.1 in December, settling at its best level since Feb 2011. Also, expectations of a better earnings season had a positive impact on investor sentiment.
Components Moving the Index
3M Company MMM has recently filed a patent infringement suit against a leading global supplier of touchscreen solutions, Elo Touch Solutions Inc.
In the latest lawsuit filed in the federal district court in Wilmington, DE, Zacks Rank #2 (Buy) 3M alleged that Elo Touch violated four of its patents registered in the United States. The infringed patents relate to 3M’s metal mesh conductor technology that is widely used in touch systems and displays.
Based on proprietary ultrafine metal mesh design, this technology enables developers and integrators to transform a piece of glass into an exciting multi-touch and real multi-user customer experience. (Read: 3M Files Lawsuit Against Elo Touch for Patent Infringement)
Apple Inc. AAPL was having a splendid 2017 until it was revealed that software updates were slowing iPhones with older batteries. It is currently facing at least eight lawsuits in various federal courts regarding the issue.
The iPhone-maker recently issued a letter at its website, apologizing for the lack of transparency relating to the handling of iPhone performance with older batteries. However, the company denied that it has ever done anything to intentionally shorten the life of a product.
Moreover, the company announced certain steps to pacify aggrieved customers. The company will lower the price of an out-of-warranty battery replacement by $50 for anyone with an iPhone 6 or later. The offer will be available from late January through December 2018. It will also issue an iOS software update with new features that give users more visibility into the health of their iPhone’s battery. (Read: Apple Apologizes for iPhone Issue, Older Models Still a Hit)
Meanwhile, Apple recently acquired Vancouver, Canada based “mobile iteration platform”, Buddybuild for an undisclosed amount. The move is expected to simplify app development for coders as Buddybuild can be integrated into Apple’s suite of software development tools called Xcode. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Walt Disney Company’s DIS Star Wars: The Last Jedi is flying high at the box office, with its worldwide collection crossing the $1 billion mark. The movie which recorded the second largest opening ever has already become the eighth highest grossing movie domestically. Further, the film is likely to overtake the seventh placed movie Star Wars: Rogue One in the coming days. (Read: Disney's The Last Jedi Smashes Records, Crosses $1B Mark)
Despite 2017 being a dull year for the movie industry, Zacks Rank #3 (Hold) Disney has once again emerged as the top grosser in domestic box office collections. Per media reports, Disney garnered $2.4 billion from the ticket sales in North America, which is more than 21% of the total domestic market share. Blockbuster performance of Disney’s latest flick Star Wars: The Last Jedi, along with runaway hits like Beauty and the Beast and Guardians of the Galaxy Vol. 2 were the primary reasons for the studio’s success in 2017. (Read: Disney Movies Top Charts, Beats Time Warner, Comcast in 2017)
General Electric Company GE intends to increase its ownership stake in Arcam AB from 76.2% to approximately 95%. The acquisition will be done by GE Sweden Holdings AB, a subsidiary of GE. It is a Swedish company within GE Aviation. GE has a Zacks Rank #5 (Strong Sell)
The shares will be acquired from private investment management firms Elliott Management and Polygon Investment Group at SEK 345 per share. The transaction is slated to be completed on the last working day of the year. Arcam develops cost effective metal-based technologies that find commercial use in orthopaedic, aerospace and automotive sectors. (Read: GE to Own 95% Stake in Arcam for 3D Market Potential)
The Goldman Sachs Group’s GS fourth-quarter 2017 results are likely to reflect a $5 billion negative impact triggered by the new tax reform, which levied taxes on overseas income. Also, deferred tax assets (DTAs) will lose value due to recent tax cuts.
Per the Tax Cuts and Jobs Act, companies based in the United States are to pay a mandatory repatriation tax of 15.5% on cash and liquid assets, and 8% on illiquid assets, irrespective of whether the earnings are brought home immediately or not.
Zacks Rank #3 Goldman expects loss from DTAs to be a much smaller part of total one-time charge. Apart from these charges, the investment bank expects the reform to be beneficial in the long term. Also, lower tax rates will increase earnings. (Read: Goldman Expects Tax Reform to Have a One-Time $5B Impact)
Merck & Co., Inc. MRK announced that its anti-PD-1 therapy, Keytruda (pembrolizumab), has been approved in Japan for previously-treated patients with urothelial carcinoma, a type of bladder cancer. This approval makes Keytruda eligible to be indicated for four types of cancer in Japan.
Notably, Keytruda has already been approved in the United States and the EU for the first and second-line treatments in patients with the aforementioned indication. Apart from bladder cancer, Keytruda is approved for many malignant disease types and treatment settings including lung cancer, melanoma, head and neck cancer and classical hodgkin lymphoma. (Read: Merck's Keytruda Gets Approved for Bladder Cancer in Japan)
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 1.3%.
Next Week’s Outlook
Markets seem to be forging ahead at this point, continuing with the successes they enjoyed in 2017. A potent combination of economic data and bullish earnings results are still fueling these gains. Meanwhile, recent tax cuts are likely to boost markets and future earnings even higher. Given this backdrop, the Dow is likely to go from strength to strength even as we head further into 2018.
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