Dow 30 Stock Roundup: EC Asks Apple To Pay $14.5B, Cisco To Buy Software Management Startup, ContainerX

The Dow swung between gains and losses over the week even as investors waited for further indications about the timing of a rate hike. Hawkish comments from the Fed chair helped financial shares gain toward the beginning of the week. However, favorable consumer data raised familiar fears about a rate hike. Meanwhile, the dollar moved higher, weighing on U.S. oil price which in turn led to losses for energy stocks. Dismal economic data released toward the end of the week led to further uncertainty about the likelihood of a rate hike.

Last Week’s Performance

The index lost 0.3% last Friday as investors continued to grapple with the timing of a rate hike. Fed Chairwoman Janet Yellen said that the case for hiking federal funds rate has gained in strength in “recent months”, thanks to a solid labor market and positive outlook on economic activity and inflation. Fed Vice-chairman Stanley Fisher also advocated a rate hike in the near term.

Meanwhile, the “second” estimate for second quarter GDP came in at 1.1%, lower than the initial estimate of 1.2%.The decline in the pace of growth was primarily attributable to a higher-than-expected fall in business inventories.

The Dow also lost 0.8% over last week. All the three benchmarks registered their largest weekly losses since the week ended June 24. Yellen’s remark that the case for an increase in short-term interest rates has strengthened dragged indexes down for the week.

The Dow This Week

The index gained 0.6% on Monday mostly helped by gains in financial stocks. As the case for an interest rate hike had strengthened, thanks to hawkish comments from Federal Reserve Chair Janet Yellen, financial shares moved north. Banks led the gains among the financial shares as they benefit from a steep yield curve.

Meanwhile, personal outlays rose for the fourth straight month in July. Personal consumption increased at 0.3% in July, a tell-tale sign that domestic consumption will drive economic growth in the second half of this year. Personal income too rose 0.4% in July. Both measures were in line with consensus expectations.

The Dow declined 0.3% on Tuesday after upbeat consumer data raised fears of an imminent rate hike. The consumer confidence index climbed to an 11-month high in August. Meanwhile, Fed Vice Chair Stanley Fischer said Fed Chair Janet Yellen’s speech to the Jackson Hole summer retreat was “consistent” with the possibility of two rate hikes this year.

Expectations that the Fed will move closer to rate hike helped the dollar hit multi-week highs. Oil prices dipped on a stronger dollar. Additionally, a rise in crude stockpiles for the week ended Aug 26 also had a negative impact on oil prices.

The index lost 0.3% on Wednesday due to a decline in energy shares. A tumble in the price of oil weighed on energy shares. Oil prices fell after data showed that U.S. crude stockpiles increased to another record level. Shares of Dow components Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) dropped 0.4% and 1.1%, respectively.

In the meantime, better-than-expected private sector employment data bolstered chances of an imminent rate. According to Automatic Data Processing (ADP), about 177,000 jobs were added in the private sector in August, exceeding expectations of 175,000 job additions. Separately, Pending Home Sales increased 1.3% in July, registering its second highest reading in over a decade.

The index increased 0.1% on Thursday, even as investors refrained from making big bets ahead of the much awaited Friday’s jobs report. Sluggish manufacturing activity and drop in domestic oil price weighed on the broader markets, but, gains in tech companies kept losses in check. The ISM Manufacturing Index dropped to 49.4 in August from 52.6 last month. The index fell below the level of 50 for the first time since February

Productivity of U.S. business and workers also fell 0.6% in the second quarter instead of 0.5%, according to the revised official figure. Separately, construction spending was flat in July and estimates for earlier months were reduced. In the wake of these dismal reports, odds of a September rate hike fell to a one in four as a risk-averse Fed is more likely to wait for further information before hiking rates.

Components Moving the Index

Apple Inc. (NASDAQ:AAPL) will have to pay $14.5 billion (and interest) in taxes to Ireland, according to a ruling by the European Commission made this Tuesday.

The European Commission alleged that Apple received undue tax benefits so far in Ireland, violating EU state aid rules. Apple inked a deal with Ireland nearly two decades back, which allowed the company to compute taxes only on its sales in Ireland instead of paying taxes on its global sales, per media reports.

As such, Apple pays a small portion of taxes to Ireland while a major portion goes to the U.S. treasuries as Apple claims that most of its research and development (R&D) is done in the U.S. office.

Media reports even state that the U.S. government is taking initiatives to repatriate the tax that Apple paid to the European Union. Per the latest updates, both Ireland and Apple intend to appeal against the European Commission’s ruling. (Read: Apple Tax Ruling: Here's What Tim Cook & Ireland Have to Say)

Chevron Corporation has entered into an agreement to sell its natural gas liquids logistics system in southeast Louisiana to Phillips 66 (NYSE:PSX) Partners LP (NYSE:PSXP) . The logistics system consists of approximately 500 miles of pipelines and a storage space that connects multiple fractionation facilities, refineries and a petrochemical facility.

The deal is expected to be completed in the fourth quarter of 2016, subject to certain regulatory approvals. Though terms of the transaction remain undisclosed, Phillips 66 Partners announced plans to finance the acquisition with cash and borrowings under its revolving credit facility. (Read: Chevron to Sell NGL Logistics Assets to Phillips 66 Partners)

Cisco Systems Inc. (NASDAQ:CSCO) recently announced its plan to buy software management startup, ContainerX. The terms of the deal have been kept under wraps.

San Jose, CA-based ContainerX offers software applications to manage containers for corporate customers. These software applications are run across different data centers and clouds to better manage containers. They are an alternative to virtual machines and are sometimes regarded as more flexible.

Upon the completion of the deal, the ContainerX team which consists of eight people will become part of Cisco's Cloud Platform & Services Group, augmenting its offering to service providers. (Read: Cisco to Acquire ContainerX for Container Management)

General Electric Company (NYSE:GE) division GE Transportation recently acquired a premier provider of cloud-based software solutions, ShipXpress, for an undisclosed amount. GE Transportation is a leading provider of technology solutions in various industries like railroad, marine, drilling, wind and mining.

This deal will help expand General Electric’s Transportation portfolio, and positively impact its top line. Per the deal, the company will gain nearly 200 industry, technical, and software development experts who have been providing their services to ShipXpress. (Read: GE Makes New Acquisition and Alliance to Boost Portfolio)

Pfizer, Inc. (NYSE:PFE) announced that its lung cancer drug Xalkori has been approved for an additional indication by the European Commission (EC). The EC has approved Xalkori for the treatment of adult patients with advanced NSCLC whose tumors are ROS1-positive.

With the latest approval in the EU, Xalkori can now be used to treat patients with either ALK positive or ROS1-positive advanced NSCLC in both the EU and U.S. (Read: Pfizer's Lung Cancer Drug Xalkori Label Expanded in the EU)

The Procter & Gamble Company (NYSE:PG) has prevailed against a private Chinese competitor from breaching the intellectual property rights of its Crest Whitestrips tooth whitening product.

A federal court issued a permanent injunction that bars Chinese company Onuge Personal Care from manufacturing, selling, or distributing products that infringe on P&G’s patents/trademarks of Crest Whitestrips. (Read: P&G Wins Crest Whitestrips Lawsuit Against Onuge)

Verizon Communications Inc.’s (NYSE:VZ) Fios by Verizon signed a premium-TV agreement with Walt Disney Co.’s (NYSE:DIS) cloud-based digital movie service platform, Disney Movies Anywhere. This deal makes Fios by Verizon the first multichannel video programming distributor (MVPD) to join the cloud-based digital movie service platform of Walt Disney.

The tie-up will enable Fios by Verizon customers in the U.S. to seamlessly connect their digital movie collections across the Disney Movies Anywhere ecosystem. (Read: Verizon & Disney Movies Announce New Alliance)

In a separate development, Verizon has recently completed a major upgrade of its 4G LTE networks to LTE-Advanced technology covering 461 cities in the U.S. The LTE-Advanced network will raise the data packet transmission speed by more than 50%. (Read: Verizon Launches Nationwide LTE-Advanced Networks)

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 declined 0.4%.

Next Week’s Outlook

At the start of the week, market watchers were fairly confident that a rate was likely to take place this month. Most economic data turned out favorable and key fed officials were making suitably hawkish comments. The dollar surged on expectations of higher interest rates, leading to a drop in domestic oil price.

However, by Thursday, the release of discouraging economic data had created fresh uncertainty about the timing of the rate hike. Though the Fed is likely to wait for more information, much is to be learnt from Friday’s crucial jobs report, which, along with other economic releases is likely to guide markets in the days ahead.

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