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Dow 30 Stock Roundup: Boeing Wins $678M Order from Navy, Exxon Releases Capex Projection for 2017

Swarup Gupta

The Dow experienced an extraordinary week of gains, riding on the positive sentiment generated by President Trump’s first speech before a Joint Congress Session. On Monday, the index hit an all-time high for the twelfth consecutive session, the longest such stretch in thirty years.

The index ebbed ahead of Trump’s speech before rebounding on Wednesday and surging past the 21,000 mark. However, negative news regarding a key component sent the index into the red on the penultimate day of the trading week.

Last Week’s Performance

The Dow gained 0.1% last Friday after gains in utilities stocks offset declines in financials and energy sectors. The Dow reached its highest level for 11 consecutive sessions, its longest such streak since 1987. The blue-chip index also increased for 11 straight trading days for the first time in 25 years.

Although all the three key indexes ended in the green on Friday, the gains were minimal owing to concerns among investors over the time frame in which President Trump will implement his economic policies. Meanwhile, the major indexes registered weekly gains, with the Dow increased for three straight weeks.

For the week, the Dow, increased by 1% after President Trump vowed to bring back millions of jobs to the U.S. Additionally, upbeat earnings reports from Wal-Mart Stores, Inc. WMT and The Home Depot, Inc. HD also boosted investor sentiment. However, some of last week’s gains were curtailed after minutes from the Fed’s last meeting showed that the central bank is comfortable in hiking rates “fairly soon.”

The Dow This Week

The Dow gained 0.1% on Monday, closing at an all-time high for the twelfth straight session on Monday, posting its longest such streak since 1987. Both the blue-chip index and S&P 500 settled at all-time high levels, while the Nasdaq closed a few points short of a record.

Investors waited for clues ahead of Trump’s speech before a joint Congress session Tuesday night, which in turn led the key indexes to close in the green. President Trump is expected to come up with new healthcare and tax reforms and outline his plans to increase infrastructure spending.

In economic news, durable orders increased by 1.8% after two straight months of declines. The metric increased after orders for military planes and commercial jets increased. The Pending Home Sales Index dropped 2.8% from December to 106.4 last month, reaching the lowest level since last January.

The index decreased 0.1% on Tuesday, the last trading day of February as investors waited eagerly for Trump’s speech on Tuesday night. The Dow closed in negative territory, snapping its winning run of twelfth consecutive session gains, the longest such streak since 1987.

According to the “second” estimate by the Bureau of Economic Analysis, fourth quarter output of goods and services increased at a seasonally adjusted annual rate of 1.9% from the previous three months. It was lower than the consensus estimate of 2.1% growth. An increase in the foreign-trade deficit weighed on growth during the final three months of 2016.

The Dow surged 4.8% during February after Trump vowed to bring back millions of jobs to the U.S. Additionally, optimism over Trump’s proposed market-friendly policies including tax cuts, financial de-regulation and increase in infrastructure spending benefitted all the three key indexes. Fed’s positive view of the economy and rally in oil prices as well as upbeat earnings reports also boosted investor sentiment.

The index gained 1.5% on Wednesday to reach a new all-time high following optimism over Trump’s Tuesday night speech. The Dow rallied past the psychological level of 21,000 for the first time ever and matched the fastest 1000-point march in history.

 In his speech, Trump focused on introducing a "historic" tax reform and a “massive” infrastructure plan, which, along with his presidential tone boosted investor sentiment. Moreover, rising Fed rate hike chances benefitted the financial sector and gradually the broader markets.

The index lost 0.5% on Thursday following news that federal agents had searched Caterpillar Inc.’s CAT Illinois office. Moreover, markets cooled with financial sector being the biggest decliner yesterday. Separately, Snapchat registered strong performance after the company gave the biggest initial public offering (IPO) since 2014.

Additionally, some amount of profit booking ensued. Financial stocks such as Goldman Sachs Group, Inc. GS and JPMorgan Chase & Co. JPM fell 0.7% and 1.6%, respectively. Meanwhile, initial claims declined by 19,000 to a level of 223,000 for the week ending Feb 25. This is the lowest level witnessed since 1973

Components Moving the Index

Performance of 5 Key Components from 2/24/17

The Boeing Company BA clinched a contract for the procurement of seven EA-18G and five F/A 18E aircraft. Per the terms of the agreement, the company will also obtain airborne electronic attack kits associated with the EA-18G jets.

Valued at $678.7 million, this contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work related to this deal will be executed in El Segundo, CA; St. Louis, MO; Bethpage, NY; and the rest at various other locations across the U.S. Zacks Rank #3 (Hold) rated Boeing will utilize fiscal 2016 aircraft procurement (Navy) funds to accomplish this contract. The expected completion date for this deal is Feb 2019. (Read: Boeing Wins $679M Navy Deal to Procure 12 Combat Aircraft)

Exxon Mobil Corporation XOM recently released its capital spending projection for 2017. The company expects capital spending to be at $22 billion for 2017, up 16% from the 2016 level.

Moreover, capital and exploration expenses are expected to average $25 billion annually through the end of the decade. Over 25% of the planned spending in 2017 has been apportioned for high-value, short cycle opportunities, including those in the Permian and Bakken basins. Short-cycle investments are defined as those anticipated to generate positive cash flow in less than three years after initial investment.

Zacks Rank #3 rated Exxon Mobil has an inventory of over 5,500 wells in the Permian and the Bakken with a rate of return of more than 10% at $40 a barrel, with nearly one-third generating considerably higher returns. Total annual net production growth from these basins could be as high as 750,000 oil-equivalent barrels per day through 2025 at a compound annual growth rate of about 20%. (Read: Exxon Mobil (XOM) Announces 2017 Capex, Growth Initiatives)

General Electric Company’s GE clean energy startup Current recently announced its decision to partner with AT&T Inc. T. Per the deal, AT&T will help General Electric sell internet-connected sensors across cities in the U.S. and Mexico.

Per the deal, General Electric will offer sensor hardware, which will be attached to a city's outdoor LED lights. In addition, the company will also offer Predix, its software platform, which will enable municipal software engineers build useful applications to analyze the data collected by the sensors. AT&T will provide network services to move that data from the sensors to a central repository where it can be analyzed. This system will enable municipal governments to access data to better control traffic flow, optimize parking, monitor air quality or detect gunshots.

Current was established in Boston in 2015, several months before General Electric decided to move its headquarters to the region. It merged a couple of the company’s existing lines of business representing about $1 billion in revenues, which include GE's LED, solar, energy storage and electric vehicle businesses. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wal-Mart is reportedly testing a “price-comparison test” in as many as 1,200 U.S. stores in the hopes of closing the pricing gap between itself and top competitors like Kroger KR and popular German discount chain Aldi, according to Reuters, who cite sources familiar with the matter.

Zacks Rank #4 (Sell) rated Walmart launched the test in 11 Midwest and Southeastern states, including Iowa, Illinois, and Florida. The retailer’s, whose grocery business makes up more than half of its total revenue, main goal is to find specific price points for specific products, adjusting prices on an as-needed basis in order to get more customers into its brick-and-mortar stores.

Apparently, Walmart met with some of its biggest vendors last week, like Conagra CAG, Procter & Gamble PG, and Unilever UL, and demanded they cut what the charge the retailer by 15%, says Reuters’ sources. They also said that Walmart expects its suppliers to help it edge out its rivals on “head-to-head pricing 80% of the time.” (Read: Walmart Launches Grocery Price War: Can It Take on Aldi?)

Apple Inc. AAPL CEO Tim Cook, reportedly, said that the company has spent over $50 billion with suppliers toward manufacturing in the U.S at the company’s annual shareholders' meet held at Cupertino.

Per media reports, Cook further added that Apple has created around 2 million jobs in the country including manufacturing jobs. It has collaborated with 3M, a Minnesota-based manufacturer for supplying adhesives and has Corning Inc. GLW to supply glass screen for iPhones.

Cook was quoted by media reports saying "We're always looking for more ways to help our country. We know that Apple can only exist in the U.S.” Cook said that nearly 70% its workforce is in the U.S. Zacks Rank #3 rated Apple has been subject to intense scrutiny by President Donald Trump regarding the “manufacturing” issue. (Read: Apple (AAPL) 2017 Shareholders Meet: Important Takeaways)

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 1.2%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

+1.6%

+5.2%

GS

+1.2%

+48.3%

IBM

-0.8%

+12.6%

HD

+2.9%

+10.3%

BA

+2.5%

+37.6%

UNH

+3.2%

+23.1%

MCD

NA

+9.4%

TRV

+2%

+4.4%

JNJ

+2.4%

+3.2%

AAPL

+1.6%

+29%

Next Week’s Outlook

The Dow’s record run of gains finally came to a halt on Tuesday before the index surged once again during the very next session. The rally may have paused for a moment, but this is only because of negative news about Caterpillar. Economic news has been positive on the whole and markets’ gains seem to be based on firmer fundamentals than was earlier believed. This is why it is extremely likely that gains will continue into next week as well.

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J P Morgan Chase & Co (JPM): Free Stock Analysis Report
 
AT&T Inc. (T): Free Stock Analysis Report
 
Boeing Company (The) (BA): Free Stock Analysis Report
 
Home Depot, Inc. (The) (HD): Free Stock Analysis Report
 
Apple Inc. (AAPL): Free Stock Analysis Report
 
General Electric Company (GE): Free Stock Analysis Report
 
Corning Incorporated (GLW): Free Stock Analysis Report
 
Goldman Sachs Group, Inc. (The) (GS): Free Stock Analysis Report
 
Unilever PLC (UL): Free Stock Analysis Report
 
ConAgra Foods Inc. (CAG): Free Stock Analysis Report
 
Caterpillar, Inc. (CAT): Free Stock Analysis Report
 
Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
Wal-Mart Stores, Inc. (WMT): Free Stock Analysis Report
 
Kroger Company (The) (KR): Free Stock Analysis Report
 
Procter & Gamble Company (The) (PG): Free Stock Analysis Report
 
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