Dow 30 Stock Roundup: Boeing Wins $11.3B Contract, GE To Invest $3B In Saudi Arabia

The Dow has gained over the week, boosted by diminishing fears about a possible rate hike and a strong rally in oil prices. The index slipped on Monday after fears of a rate hike increased following fresh comments from Fed officials. However, by Tuesday investors had come to believe that a rate hike may indicate moderate economic growth and the index moved upward. Gains on Wednesday were fuelled by a considerable increase in oil prices. The Dow has gained 0.7% over the first three trading days of the week.

Last Week’s Performance

The index increased 0.4% on Friday following speculations that indications of a Fed rate hike signal that the economy may be strengthening. After the release of FOMC’s minutes on Wednesday, rate hike fears weighed on investor sentiment. By Friday, Investors believed that since a possible decision to hike rates emanates from a series of encouraging economic reports, rising rate hike prospects might indicate a stronger economy.

Existing home sales for the month of April came in at 5.45 million units, increasing 1.7% from the revised level of 5.36 million units for March. Existing home sales also came in ahead of the consensus estimate of 5.38 million units. Existing home sales increased for the two-consecutive months.

The Dow fell for the week, registering four consecutive weekly declines for the first time since Oct 2014. The index declined 0.2% even as other benchmarks gained over the same period. Rising rate hike worries raised investor woes, but had a positive impact on the financial services sector. Increase in oil prices boosted energy stocks.

Moreover, shares of Apple Inc (NASDAQ:AAPL) increased after Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRKa) BRK.B reported in a regulatory filing that it has acquired 9.8 million shares or $1 billion stake in Apple during the first quarter.

Home Depot, Inc. (NYSE:HD) and Wal-Mart Stores Inc’s (NYSE:WMT) posted better than expected earnings results and strong outlook. Initial claims decreased and Leading Indicators Index advanced. Also, CPI, Core CPI, housing starts, building permits, industrial production and capacity utilization increased. However, the Empire State Manufacturing Survey Index came in negative and National Association of Home Builders (NAHB) home builder sentiment index (HMI) remained flat.

The Dow This Week

The index lost 0.1% on Monday after fears of rate hike increased following fresh comments from Fed officials. Rate hike concerns had a negative impact on the utilities sector, which also affected broader markets.

Fed officials’ hawkish comments raised worries of a possible rate hike next month. Boston Fed President Eric Rosengren said that “most of the conditions that were laid out in the minutes” seemed to be “on the verge of broadly being met.”

Also, St. Louis Federal Reserve President James Bullard said that rates being kept “too low for too long,” could result in “future financial instability even if it doesn't” show that the U.S. economy is in “that situation today." Further, San Francisco Fed President John Williams said that despite the presidential election, the Fed will raise rates this year.

Gains made Apple’s shares helped curb some of the day’s losses. Shares of Apple Inc. advanced 1.3% after the company reportedly asked its suppliers to manufacture more iPhone 7s. The tech giant asked its suppliers to make around 72-78 million iPhones by the end of 2016, much higher than analysts’ expectation of 65 million

The index increased 1.2% on Tuesday after fears regarding rate hike diminished as investors continued to come to terms with a possible hike next month. Investors now believe that a rate hike may indicate moderate economic growth. This in turn had a positive impact on financials and tech stocks, which helped benchmarks close in the green. The Dow registered its best percentage gains since Mar 11.

Further, encouraging housing data also boosted the markets. New home sales rose by 1.6% from March to 619,000 in April, settling at its highest level since Jan 2008. It was significantly higher than the consensus estimate of 521,000. New home sales also posted its highest monthly percentage rise in 24 years. Moreover, new home sales revised upward in March from 511,000 to 531,000.

The index increased 0.8% on Wednesday following strong rally in oil prices. Oil prices increased after the U.S. Energy Information Administration (EIA) reported Wednesday that U.S. commercial crude oil inventories fell 4.2 million barrels to 537.1 million for the week ended May 20. Analysts had expected inventories to decrease between 2.5 million barrels and 3.3 million barrels.

WTI crude increased 1.9% to $49.56 a barrel, settling at its highest level since Oct 9, 2015. Gains in oil prices boosted energy and materials stocks. Meanwhile, data from Markit revealed that U.S. Services PMI declined from 52.8 in April to 51.2 in May.

Components Moving the Index

The Boeing Co. (NYSE:BA) has won an order worth $11.3 billion at list prices from VietJet Aviation Joint Stock Company, a Vietnamese carrier, for 100 737 MAX 200 airplanes. This marks the single largest commercial airplane purchase by a Vietnamese company.

The agreement was signed between Nguyen Thi Phuong Thao, President and CEO of Vietjet and Ray Conner, President and CEO of Boeing Commercial Airplanes at the Presidential Palace in Hanoi during President Barack Obama’s visit to Vietnam.

Delivery of the airplanes will commence in 2019 and run through 2023. With this agreement, Vietjet will be able to expand its fleet to over 200 airplanes by 2023 end, incorporating the world’s most modern and advanced technology.

General Electric Company (NYSE:GE) has recently inked a memorandum of understanding with the Saudi Arabian Industrial Investments Company to invest $3 billion in the country’s digital and industrial sectors to diversify its crude oil-based economy. The strategic move will enable General Electric to expand its presence in Saudi Arabia and play an integral part in transforming the regional dynamics.

In particular, General Electric plans to invest in projects related to water, energy, aviation, digital and other non-oil industries to help the country shed its dependency on crude oil production for economic development. The company further intends to double its workforce in the country to 4,000 by 2020. The company also expects to develop digital innovations through its proprietary Predix cloud-based software to optimize industrial performance.

The Goldman Sachs Group, Inc. (NYSE:GS) is reportedly raising funds to purchase stakes in private-equity firms. The news, first reported by The Wall Street Journal, stated that the company’s asset management wing will initially acquire stakes through its Petershill II fund which raised around $1.5 billion.

Citing people familiar with the matter, the report stated that Goldman seeks to build a diversified portfolio of managers across various sectors and strategies. The New York-based Wall Street giant will focus on both medium and large size private-equity firms. In order to make such investments, Goldman is likely to launch a new fund.

International Business Machines (NYSE:IBM) has reportedly eliminated quite a few jobs last week with most cuts coming at the New York City, Poughkeepsie, N.Y, Research Triangle Park campus NC, and Boulder, CO.

Media reports suggests that some of the jobs might be moved to cost effective places like India and total layoffs could be as high as 14K. In March, the company reduced 5,000 positions.

IBM said on May 20 that reorganization is in process and the company will employ more staff in newer and key areas like cognitive cloud computing and added that it had 20,000 open positions. However, Wall Street Journal, citing two unnamed employees, stated that IBM’s internal job search tool listed between 7,000 and 8,000 open positions.

Pfizer Inc. (NYSE:PFE) announced that European regulators have lifted a warning on the company's smoking cessation drug, Champix, known as Chantix in the U.S. The company said that the European Summary of Product Characteristics (SmPC) and Package Leaflet for Champix have been updated to include data from the EAGLES study.

The label update was implemented after the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) rendered a positive opinion. As a result, the black triangle symbol, indicating the requirement of additional safety monitoring for the drug in the EU, has been removed.

In another development, Pfizer announced that the European Medicines Agency has accepted for review the marketing authorization application for Trumenba (meningococcal group B vaccine). The acceptance marks the initiation of the EMA’s review process for the vaccine.

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 2.1%.

Next Week’s Outlook

Investors seem to have finally changed their stance toward an imminent rate hike. Markets now believe that such a decision is a result of a stronger economy. Meanwhile, oil prices continue to rebound lending further strength to the markets. Several important economic reports are lined for release during the days ahead. This includes the all important GDP report and personal expenditure numbers. Further positive indications on this front will help in boosting stocks upward over the next week.