The Dow notched up gains this week following impressive earnings from key components, rising oil prices and a rebound in financials. The index increased on Monday following gains in energy and consumer discretionary stocks. The index gained again on Tuesday following a strong rebound in oil prices. The index moved higher on Wednesday following gains in financials and energy stocks. On Thursday, the index snapped three straight sessions of gains to close in the red following declines in telecom stocks. The Dow has increased 0.5% over the first four trading days of the week.
Last Week’s Performance
The index decreased 0.2% last Friday following a slump in oil prices, which dragged energy stocks downward. The decline reflected speculation over the extent to which Sunday’s crude production meeting between major oil producing nations could control global crude oversupply.
Oil prices slumped further on news that Iran’s OPEC governor Hossein Kazempour Ardebili will attend the Doha meeting instead of its oil minister Bijan Namdar Zangeneh. Iran’s unwillingness to freeze oil output had a negative impact on investor sentiment. Chevron Corp (NYSE:CVX) and Exxon Mobil Corp (NYSE:XOM) fell 0.8% and 0.5%, respectively.
Moreover, shares of Apple Inc. (NASDAQ:AAPL) dropped 2% after Japan’s Nikkei newspaper reported that sluggish sales may force the company to reduce iPhone production levels for the April–June quarter after a similar cut in the last quarter. Additionally, industrial production decreased 0.6% in March, registering the sixth decline in seven months.
For the week, the index advanced 1.8%. Gains in financial and bank stocks had a positive impact on the U.S. markets. Moreover, a rally in oil prices for the week also boosted investor sentiment. During the week, optimism over the crude production freeze meeting in Doha between both OPEC and non-OPEC members boosted oil prices. Separately, decrease in initial claims, and rise in both Consumer Price Index (CPI) and core CPI also boosted investor sentiment.
The Dow This Week
The index increased 0.6% on Monday following gains in energy and consumer discretionary stocks. The Dow moved above the 18,000 level for the first time since July 21. Although oil prices declined for the day, a late recovery in prices helped energy stocks to notch up gains. Failure on the part of the major oil producing nations to come to an agreement in the Doha meeting on Sunday over freezing crude production resulted in a decline in oil prices.
However, some of the losses in oil prices were curbed following a strike by oil workers in Kuwait. Meanwhile, the Energy Information Administration (EIA) reported a fall in U.S. crude output by 90,000 bpd to 9 million bpd in March. Chevron and Exxon Mobil rose 1.5% and 1%, respectively.
Further, shares of Walt Disney Company (NYSE:DIS) rose 2.9% after the "The Jungle Book" garnered weekend box office collections of $103.6 million in North America. This was the second biggest April opening sales figure ever. Walt Disney was the best performer among the Dow components.
The index gained 0.3% on Tuesday following a strong rebound in oil prices. Oil prices bounced on disruptions in crude production around the globe. Kuwait’s oil worker strike moved into its third day, due to which crude output declined by 1.3 million barrels per day. Moreover, Nigeria’s pipeline problems lowered output by another 440,000 barrels.
Chevron and Exxon Mobil rose 1.8% and 0.5%, respectively. Additionally, shares of Goldman Sachs Group, Inc. (NYSE:GS) increased 2.3% after the company reported encouraging earnings. Shares of Johnson & Johnson (NYSE:JNJ) increased 1.6% after earnings beat estimates. Goldman Sachs was the biggest advancer among the Dow components.
However, shares of International Business Machines Corporation (NYSE:IBM) declined 5.6% after first-quarter earnings and revenues declined 19.2% and 4.6%, respectively, year on year. Meanwhile, housing starts decreased 8.8% reaching its lowest settlement since October.
The index increased more than 0.2% on Wednesday following gains in financials and energy stocks. The oil price rally boosted energy stocks upward. Prices increased after U.S. crude output declined for the sixth consecutive week. The U.S. Energy Information Administration (EIA) reported that domestic crude output fell by 24,000 barrels per day (bpd) to 8.953 million bpd for the week ended April 15.
Also, the EIA reported that U.S. commercial crude oil inventories rose 2.1 million barrels to 538.6 million for the week. This was lower than an increase of 3.1 million barrels reported by the American Petroleum Institute (API).
Meanwhile, gains in Goldman Sachs Group, Inc. (NYSE:GS) and UnitedHealth Group Incorporated (NYSE:UNH) of 2.7% and 2.6%, respectively, had a positive impact on the blue-chip index. Although Coca-Cola Company (NYSE:KO) registered better-than-expected earnings, its shares slumped 4.8% following a decline in soda volume growth. Existing home sales increased by 26,000 units for February.
The index snapped three straight sessions of gains to close in the red on Thursday following declines in telecom stocks. The Dow fell 0.5%, ending below the 18,000 level yesterday after shares of Travelers Companies, Inc. (NYSE:TRV) fell 6.1% following disappointing earnings.
Moreover, shares of Verizon Communications Inc. (NYSE:VZ) decreased 3.3%, which also had a negative impact on the blue-chip index. Verizon’s shares slumped after the company said that the ongoing worker strike might affect its second-quarter earnings.
Shares of American Express Company (NYSE:AXP) rose 0.9% after earnings beat estimates. Also, General Motors Company’s (NYSE:GM) shares increased 1.5% after its adjusted earnings outpaced estimates. Shares of Intel Corporation (NASDAQ:INTC) rose 1.3% on better-than-expected earnings.
Initial claims decreased 6,000 to its lowest level since 1973. Leading Indicators Index advanced 0.2% in March, lower than the consensus estimate of 0.3%.
Components Moving the Index
American Express reported first-quarter 2016 operating earnings per share (EPS) of $1.45, which surpassed the Zacks Consensus Estimate of $1.36 by 6.62%. However, EPS declined 2% year over year, primarily due to the strengthening of the U.S. dollar and an increase in expenses.
Revenues of $8.1 billion beat the Zacks Consensus Estimate of $8.0 billion by 1% and grew 1.7% year over year. The company maintained its EPS projection for the full year at $5.40–$5.70.
Coca-Cola reported first-quarter 2016 adjusted earnings of 45 cents per share, which beat the Zacks Consensus Estimate of 44 cents by 2.3%. Net revenue declined 4% year over year to $10.28 billion due to currency headwinds and one less selling day in the quarter. However, revenues outpaced the Zacks Consensus Estimate of $10.26 billion by 0.2%.
The company re-affirmed the previously issued 2016 outlook. Organic revenues are expected to be up 4–5% in 2016. Adjusted constant currency EPS is expected to increase 4–6% for the full year.
General Motors recorded adjusted earnings of $1.26 per share in the first quarter of 2016, beating the Zacks Consensus Estimate of $1.01 by a wide margin. Earnings also surged 46.5% from 86 cents per share recorded in the first quarter of 2015. Revenues in the reported quarter were $37.3 billion, 4.5% higher than $35.7 billion recorded in the year-ago quarter.
Goldman Sachs reported first-quarter earnings per share of $2.68, outpacing the Zacks Consensus Estimate of $2.57. However, the bottom line compared unfavorably with the year-ago figure of $5.94. Goldman’s net revenue slumped 40% year over year to $6.3 billion in the quarter under review. Moreover, revenues lagged the Zacks Consensus Estimate of $7.1 billion.
IBM reported first-quarter 2016 results wherein both non GAAP earnings per share of $2.35 and revenues of $18.684 billion easily surpassed the respective Zacks Consensus Estimate of $2.09 and $18.305 billion. However, on a year-over-year basis, the figures declined 19.2% and 4.6%, respectively. For 2016, the company projects non-GAAP earnings to be around $13.50. The Zacks Consensus Estimate for the same is currently pegged at $13.51.
Intel reported first-quarter earnings of $0.54 per share, exceeding the Zacks Consensus Estimate of $0.49. The chipmaker reported revenues of $13.8 billion, which fell marginally short of the Zacks Consensus Estimate of $14 billion.
Additionally, the company announced it was cutting 12,000 jobs. This amounts to nearly 11% of the company’s employees and is part of a restructuring plan running into next year aimed at cutting costs by nearly $1.4 billion on a pre-tax annualized basis.
Johnson & Johnson reported first-quarter 2016 earnings of $1.68 per share, exceeding the Zacks Consensus Estimate of $1.64 and increasing 7.7% from the year-ago period. Sales came in at $17.5 billion, exceeding the Zacks Consensus Estimate of $17.4 billion by a small margin.
J&J now expects 2016 earnings in the range of $6.53 to $6.68 per share on revenues of $71.2 billion to $71.9 billion. The Zacks Consensus Estimate for earnings and revenues is $6.52 per share and $71.5 billion, respectively.
Travelers Companies first-quarter 2016 operating earnings of $2.33 per share missed the Zacks Consensus Estimate of $2.57 by 9.3%. Earnings also declined 7.9% year over year. Total revenue of Travelers inched up 1% from the year-ago quarter to $6.7 billion. Revenues beat the Zacks Consensus Estimate of $6.6 billion by 1.8%.
UnitedHealth Group reported first-quarter earnings of $1.81, exceeding the Zacks Consensus Estimate of $1.72 by 5.2%. The insurer posted revenues of $44.5 billion, marginally below the Zacks Consensus Estimate of $44.7 billion but 21% higher than the year-ago period. UnitedHealth expects 2016 earnings within $7.75 to $7.95 per share, and revenues of $182 billion.
Verizon reported first-quarter earnings of $1.06 per share, in line with the Zacks Consensus Estimate. Quarterly total revenue increased 0.6% year over year to $32,171 million. The Zacks Consensus Estimate was pegged at $32,406 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 increased by 0.3%.
Ticker | Last 5 Day’s Performance | 6-Month Performance |
MMM | +0.1% | +8.1% |
GS | +2.4% | -9.9% |
IBM | -1.8% | +3.6% |
HD | -0.8% | +8.2% |
BA | +0.7% | -10.6% |
UNH | +3.3% | +16.8% |
MCD | -1.2% | +13.5% |
TRV | -5.9% | -3.1% |
JNJ | +2.8% | +14.1% |
MMM | +0.1% | +8.1% |
Next Week’s Outlook
The blue chip index moved higher this week due to strong earnings results from several key components and higher oil prices. Despite the lack of agreement among major oil producing countries at Doha, crude prices got a boost from a workers strike in Kuwait and favorable domestic production and reserves data.
Additionally, financial stocks were also lifted by strong results and a reduction in fears of oil loans defaults. Earnings results will continue to have a major impact on market direction.
Economic data was mixed in nature and did not affect stocks to a significant extent. However, several crucial economic reports are scheduled for release next week. This includes data on housing, durable orders, personal spending and GDP. If most of these reports are positive in nature, markets are likely to move higher in the days ahead.
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COCA COLA CO (KO): Free Stock Analysis Report
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