The index enjoyed a week of strong gains after the Fed Chair indicated that a near-term rate cut was increasingly likely. His stance was supported by other key central bank officials, St. Louis Fed Chief James Bullard and Fed Vice Chair Richard Clarida. Meanwhile, reports emerged that U.S. tariffs on Mexico are likely to be delayed, a development greeted warmly by investors.
Last Week’s Performance
The index slumped 1.4% last Friday after President Trump threatened to impose tariffs on all Mexican imports unless that country acted to prevent cross-broader migration. Moreover, signs emerged that the ongoing trade conflict with China are likely to aggravate.
The index declined 3% over last week. This marks the blue-chip index’s sixth straight weekly loss, the longest weekly losing streak since June 2011. Aggravation of tariff-related conflicts between the United States and China weighed on investors’ confidence to a large extent.
In May, the Dow plunged 6.7%. The sudden breakdown of U.S.-China trade negotiations and Trump’s latest threat to impose tariff on Mexico were singularly responsible for Wall Street’s mayhem. Investors shifted to safe-haven government bonds from risky assets like equities. Consequently, yield on benchmark 10-year U.S. Treasury Note declined to 2.13%, its lowest since 2017.
The Dow This Week
The index inched up 4.74 points on Monday even as news emerged that federal agencies were investigating technology behemoths about the possible violation of anti-trust laws. Several members of Congress have spoken in favor of breaking up tech giants in order to prevent anti-trust law violations. Consequently, shares of tech behemoths suffered, with Apple Inc. AAPL losing 1%.
The index surged 2.1% on Tuesday after Fed Chairman Jerome Powell signaled a reduction in benchmark interest rates this year. Moreover, positive developments on the trade war front also steadied investors’ confidence.
According to a Bloomberg report, Senate Republicans have decided to oppose President Trump’s decision to impose 5% tariff on all imports from Mexico. Moreover, China’s Ministry of Commerce called for further talks to resolve the trade conflict with the United States.
The index surged 0.8% on the Wednesday as expectations of a near-term rate cut increased. According to CME FedWatch tool, 65% responders were hoping for a rate cut in 2019 as of Jun 3.
However, after Powell’s speech, more than 90% of the responders expect a rate cut by September and 80% foresees a likely second cut by the end of December. Some market watchers are hopeful that central bank will cut rates in July.
The index gained 0.7% on Thursday, logging its longest stretch of gains since March 18. A report from Bloomberg revealed that the Trump administration is likely to put off tariffs on Mexico for the time being. Meanwhile, the ECB indicated that it is likely to maintain its soft monetary stance into the first half of 2020.
Components Moving the Index
UnitedHealth Group Incorporated’s UNH board of directors has proposed a 20% increase in the quarterly dividend of 90 cents per share, in a bid to enhance shareholder value. Shareholders of record on Jun 17, 2019 are expected to receive this meatier dividend on Jun 25, 2019. UnitedHealth has a Zacks Rank #3 (Hold).
The company hiked its dividend payout by the same percentage, from 75 cents per share to 90 cents, last June as well. United Health’s track record of disbursing quarterly dividends and raising the payout annually appears impressive to investors. Notably, the company’s dividend trend witnessed a CAGR of 33.5% from 2013 to 2018.
Based on the closing price of $242.77 on Jun 5, 2019, the dividend yield of the company stands at 1.48%, better than the industry average of 1.18%. (Read: UnitedHealth to Offer 20% Hike in Quarterly Dividend)
3M Company MMM announced plans to divest its gas and flame detection business to Teledyne Technologies Incorporated TDY. Teledyne offered to purchase the aforementioned business for $230 million. The Personal Safety Division of 3M specializes in personal protection equipment and solutions like breathing apparatus, respirators, face protection and others.
Teledyne is primarily engaged in providing engineered systems, sophisticated instrumentation, aerospace and defense electronics, and digital imaging products and software. This company is based in Thousand Oaks, CA.
As part of the divestment deal, 3M will sell Simtronics, Oldham, Detcon and GMI brands of the gas and flame detection business, except for the Scott Safety brand. If this binding offer gets accepted by the company, the deal will likely close in the second half of 2019. (Read: 3M to Divest Personal Safety Division's Business to Teledyne)
Merck & Co., Inc. MRK presented encouraging five-year survival data on its PD-L1 inhibitor, Keytruda in patients with advanced non-small cell lung cancer (NSCLC) at the annual meeting of American Society of Clinical Oncology (ASCO).
Data from the phase Ib KEYNOTE-001 study (n=550) showed that five-year overall survival (OS) rates for Keytruda were 23.2% in treatment-naïve patients and 15.5% in previously treated lung cancer patients. In lung cancer patients whose tumors express PD-L1 protein levels of 50 percent or greater (TPS of ≥50 percent), the five-year OS rate was 29.6% in treatment-naïve patients and 25% in previously treated patients.
Historically, the five-year survival rate in advanced lung cancer patients in the United States has been around 5%. Keytruda’s five-year survival rates thus represent a huge improvement over these historical rates. (Read: Merck's Keytruda Improves 5-Year Survival in Lung Cancer)
In another development, Merck gained FDA approval for a supplemental new drug application looking for label expansion of its antibacterial medicine, Zerbaxa for two types of pneumonia infections.
Zerbaxa, a combination of ceftolozane and tazobactam, is presently marketed for some complicated urinary tract infections. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chevron Corporation CVX intends to bring online a shipping fuel blend — which conforms to the IMO 2020 regulation — by the end of the third quarter, per Reuters. At present, Zacks Rank #2 Chevron can make the new fuel blend available for shipping companies for trial purposes and not for continuous purchase.
In 2016, the IMO announced the decision to curb sulfur amount in marine fuels to 0.5% from the current cap of 3.5% by 2020, which can significantly reduce greenhouse gas emissions.
The IMO 2020 regulations will allow the ships — which have installed sulphur-cleaning devices (or scrubbers) to cleanse sulfur from dirty fuels — to use high-sulfur fuel. These scrubbers are pretty costly. (Read: Chevron to Make IMO 2020 Low-Sulfur Fuel Available by Q3-End)
Exxon Mobil Corporation XOM recently announced plans to increase production through further investment in Block 15 offshore Angola. The company signed an agreement with National Agency for Petroleum, Gas and Biofuels of Angola to redevelop the block.
Notably, the block has produced more than 2.2 billion barrels of oil since 2003. The redevelopment process is expected to add around 40,000 barrels of oil per day to its existing production.
Zacks Rank #3 Exxon Mobil plans to install new infrastructure technology at the site, which will likely increase the capacity of prevailing subsea flow lines. Moreover, the redevelopment is expected to create 1,000 jobs during the execution period. (Read: ExxonMobil to Redevelop Block 15 Offshore Angola, Grow Output)
Microsoft Corporation MSFT recently entered into a cloud “interoperability” partnership with Oracle Corp. ORCL. Zacks Rank #2 Microsoft and Oracle introduced new cloud capabilities to allow enterprises to capitalize on the interconnected cloud platforms. Financial terms of the deal have been kept under wraps.
Per the terms of the deal, Microsoft Azure will be integrated with Oracle Cloud to enable the joint enterprise customers to run their respective enterprise workloads seamlessly on their respective on-premises datacenters. The interconnect availability has recently been introduced in Azure US East and Ashburn (North America) regions. (Read: Microsoft Ups Ante in Cloud With Oracle Partnership)
The Boeing Company BA recently secured a modification contract worth $35 million for the integration, sustainment and support of the Small Diameter Bomb (SDB) Increment I miniature munition. The contract was awarded by the Air Force Life Cycle Management Center, Eglin Air Force Base, Florida.
Work related to the deal will be carried out in St. Louis, MO and is scheduled to be over by Apr 15, 2029.
The contract involves foreign military sales to Australia, Belgium, Canada, Denmark, Greece, Israel, South Korea, the Netherlands, Spain, Sweden, Turkey and Singapore, with an approved letter of offer and acceptance. Notably, Zacks Rank #5 (Strong Sell) Boeing will utilize fiscal 2015 and 2016 missile procurement and foreign military sales funds to complete the task. (Read: Boeing Wins $35M Deal to Support Small Diameter Bomb Program)
Performance of the Top 10 Dow Companies
The table given below shows the price movement of the 10 largest components of the Dow, which is a price-weighted index, over the past five days and during the last six months. Over the past five trading days, the Dow has jumped 3.4%.
Next Week’s Outlook
Comments from the Fed Chair and other leading central bank officials have buoyed investor sentiment significantly in the past week. This has encouraged traders to opt for riskier investments such as equities. A decline in bond yields has only helped matters.
Meanwhile, the trade rhetoric seems to be cooling, and fresh tariffs on Mexico seem unlikely in the near term. If China and the United States can reignite trade negotiations soon, investors should continue to enjoy gains in the days ahead.
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Merck & Co., Inc. (MRK) : Free Stock Analysis Report
The Boeing Company (BA) : Free Stock Analysis Report
Teledyne Technologies Incorporated (TDY) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
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