The Dow had a dismal week, weighed down by disparate factors. The blue chip index moved lower on Monday, as investors remained wary due to international tensions. The Dow gained on Tuesday following encouraging housing data and upbeat earnings. Dismal data from key Dow components pushed the blue chip index lower on Wednesday.
The Dow dropped marginally on Thursday following mixed corporate results and economic data. Despite these reverses, the Dow has gained 0.19% during the first four trading days.
Last Week’s Performance
The Dow gained 0.7% last Friday, as benchmarks rebounded from initial losses to end in the green. Upbeat earnings results coupled with gains in bio-tech and Internet stocks, helping markets move higher. Meanwhile, investors kept an eye on developments related to the MH17 crash and Israel’s invasion of Gaza that had compelled investors to take money out of equities on Thursday. Friday’s broad-based gains helped benchmarks end the volatile week with modest gains.
For the week, the Dow settled in the green, gaining 0.9%. Benchmarks settled in the green for the week, banking on upbeat quarterly results from several major companies. A flurry of new deals in the technology sector boosted investor sentiment. The healthcare sector was also boosted by merger and acquisition activities. AbbVie Inc. proposed an increased $53 billion takeover bid of Shire plc. The energy sector too benefited from merger and acquisition activity.
However, benchmarks suffered their biggest losses in months on Thursday following reports that a Malaysian Airlines passenger jet was shot down near Ukraine-Russian border. Further, benchmarks were negatively impacted on Tuesday after a Fed monetary policy report sparked concerns about “substantially stretched valuations” in Internet and bio-tech stocks. Additionally, Federal Reserve Chairwoman Janet Yellen’s comment that federal funds rate might be raised sooner if the labor market keeps surprising the central bank dented investor sentiment.
Among major economic data, housing starts fell to a nine-month low in June. However, the Federal Reserve’s Beige Book stated that economic activity in all twelve Federal Reserve Districts expanded since the previous report. Additionally, the U.S. Producer Price Index (PPI.V) for finished goods and industrial production increased in June.
The Dow This Week
Benchmarks settled in the red on Monday as investors remained cautious following international tensions. Ongoing geopolitical developments kept investors jittery. Israel stepped up its ground offensive in Gaza strip. Israel’s move came despite growing international pressure for a cease-fire. The day was devoid of any major economic data and corporate earnings results that could have impacted the markets. The Dow lost 0.3%.
The Dow advanced nearly 0.4% on Tuesday following encouraging housing data and upbeat corporate earnings results. Investors were encouraged by strong existing home sales data that rose 2.6% to a seasonally adjusted annual rate of 5.04 million in June from May’s upwardly-revised figure of 4.91 million. This was the highest level recorded since Oct 2013. Earnings results from Chipotle Mexican Grill, Comcast and Verizon Communications Inc. (VZ) were also encouraging.
Upbeat quarterly results from healthcare and technology companies helped benchmarks finish mostly higher on Wednesday. Apple and Biogen’s impressive quarterly performances helped the S&P 500 and the Nasdaq close in the green. However, analysts took a dim view of The Boeing Company’s (BA) results and Caterpillar Inc. (CAT) reported weak monthly sales, leading to losses for the blue-chip index. The Dow lost nearly 0.2%.
The Dow dropped a meager 0.02% on Thursday as investors received mixed corporate results and economic data. Facebook and Ford reported upbeat quarterly results. However, Caterpillar, General Motors and D.R. Horton posted dismal corporate results. Economic data on initial claims was positive, but new home sales numbers were discouraging.
Components Moving the Index
The Boeing Company delivered upbeat second quarter 2014 results backed by robust deliveries. The company reported adjusted second quarter 2014 earnings of $2.42 per share, beating the Zacks Consensus Estimate by 19.8%. The quarterly number rose an impressive 44.9% from $1.67 per share a year ago.
Including pension-components related to market fluctuations and other items, Boeing reported a profit of $2.24 a share, up 59% from $1.41 per share in the year-ago quarter.
Caterpillar Inc.’s second-quarter earnings increased 17% year on year to $1.69 per share, beating the Zacks Consensus Estimate of $1.51. Including restructuring costs, earnings stood at $1.57 in the quarter, up 8% from $1.45 in the prior-year quarter.
Verizon Communications Inc. reported second-quarter 2014 adjusted earnings of 91 cents per share, beating the Zacks Consensus Estimate by a penny. The bottom line improved 24.7% from 73 cents per share earned a year ago. The earnings growth was buoyed by strong revenue contribution from wireless services, improvement in wireless operating margins and increased demand for FiOS services
The Coca-Cola Company (KO) posted mixed second quarter 2014 results. Second-quarter 2014 adjusted earnings of this Zacks Rank #3 (Hold) company were 64 cents per share, beating the Zacks Consensus Estimate of 63 cents.
Earnings increased 1% year over year (6% on a constant currency basis) driven by improved sparkling beverage volumes, price/mix gains, strong international volumes and better gross margins.
However, an improvement in volume of sparkling beverages like Coca-Cola, Fanta and Sprite caught investors’ attention.
Net revenue declined 1% year over year to $12.57 billion due to headwinds from currency and structural changes. Revenues also missed the Zacks Consensus Estimate of $12.85 billion.
3M Company (MMM) reported second-quarter 2014 net income of $1,267 million or $1.91 per share compared with $1,197 million or $1.71 a share in the year-earlier quarter. The reported earnings per share were in line with the Zacks Consensus Estimate. The increase in earnings was driven by higher sales.
Quarterly net sales increased 4.9% year on year to $8,134 million, above the Zacks Consensus Estimate of $8,055 million. The increase in sales was driven by 4.8% organic local currency sales growth and 0.1% impact of acquisitions. Operating income for second-quarter 2014 was $1.9 billion, while operating margin was 22.8%.
AT&T Inc. (T) reported second-quarter 2014 adjusted earnings per share of 62 cents, missing the Zacks Consensus Estimate by a penny. Adjusted earnings dropped 7.5% year on year. Significant pricing competition, new device financing plans and other promotional strategies weighed on earnings.
Adjusted earnings for the quarter excluded the impact of 10 cents related to expense of the Leap Wireless transaction and gains from the sale of the company’s equity investment in America Movil S.A.B. de C.V. (AMX).
DuPont (DD) posted adjusted earnings of $1.17 per share in the reported quarter that was below $1.28 per share posted a year ago. Earnings were in line with the Zacks Consensus Estimate. Adjusted earnings exclude one-time items including charges associated with the separation of the company's performance chemicals business, restructuring expenses and pension costs.
Including one-time items, DuPont registered earnings from continuing operations of $1.15 per share in the quarter versus $1.10 per share a year ago. Consolidated net income, as reported, was up 3.9% year over year to $1,070 million or $1.15 per share.
McDonald’s Corporation (MCD) reported adjusted earnings of $1.40 per share in the second quarter of 2014, which missed the Zacks Consensus Estimate of $1.43. Revenues increased 1.4% year over year to $7.18 billion, owing to improved global comparable sales (comps) at Asia/Pacific, Middle East and Africa (:APMEA). However, revenues missed the Zacks Consensus Estimate of $7.29 billion by 1.5%.
Microsoft Corporation’s (MSFT) fiscal fourth quarter earnings were short of the Zacks Consensus Estimate. But the recent restructuring announcement, directional clarity and the decision to focus on fast-growing segments that play to its strengths have increased optimism about Microsoft’s shares.
Microsoft CEO Satya Nadella’s vision includes repositioning Microsoft in a cloud-first mobile-first world. This will enable Microsoft’s services and technology to reach a larger number of devices across PC and mobile platforms, as well as emerging platforms like wearables and the Internet of Things (IoT).
The Travelers Companies Inc. (TRV) posted operating earnings of $1.93 per share in the second quarter, missing the Zacks Consensus Estimate by 13 cents. Earnings were also 9.4% lower year over year. Higher-than-expected catastrophe losses were largely responsible for the underperformance.
United Technologies Corp (UTX) reported second quarter 2014 net income of $1,680 million or $1.84 per share, up from $1,560 million or $1.70 in the year-ago quarter. The reported EPS beat the Zacks Consensus Estimate of $1.79. The increase in earnings was primarily driven by higher revenues. Total revenue for the second quarter rose 7% year over year to $17,191 million, above the Zacks Consensus Estimate of $16,689 million.
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 0.25%.
Last 5 Day’s Performance
6 Month Performance
Next Week’s Outlook
As expected, earnings have influenced the Dow to a large extent this week. However, economic reports have also impacted the fortunes of stocks. Next week features key economic reports including data on GDP, consumer confidence, initial claims and pending home sales.
Since Monday, international developments have not impacted indices significantly. However, the conflicts in Gaza and Ukraine continue and breakthroughs in this regard would come as a welcome gift to investors. Till then earnings and economic data are expected to guide the course of markets
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