The Dow has had a largely positive holiday shortened week. The blue-chip index swung between small gains and losses on Monday before ending marginally higher. The Dow snapped a three-session winning streak and ended in the red on Tuesday, taking only meager losses.
The Dow rebounded on Wednesday, closing at a record level for the 30th time this year. The market remained closed on Thursday for the Thanksgiving Day holiday. The Dow has gained 0.1% during the first three trading days.
Last Week’s Performance
Stocks gained on Friday after China’s central bank and ECB’s efforts to stimulate their economies boosted investor sentiment. China’s central bank lowered its one-year deposit rate by 40 basis points to 5.60%. The central bank also trimmed its deposit rates by 25 basis points to 2.75%. This was the first time the apex bank cut its interest rates since Jul 2012.
ECB President Mario Draghi said the apex bank is ready to “step up the pressure" and expand its asset-purchasing program provided inflation fails to return to its desired level. ECB declared that it has started purchasing asset-backed securities in order to revive the economy. The Dow added 0.5%.
The blue-chip index also recorded gains for the fifth straight week, advancing by 1%. Benchmarks ended in the green zone for the week on encouraging economic data. Existing home sales gained in October, initial claims dropped and the Philadelphia Fed's manufacturing index increased to 40.8, surpassing the consensus estimate of 16.8.
Upbeat retail earnings also boosted markets. A rebound in oil prices boosted energy shares and healthcare stocks rallied on deal news. Easing global growth worries too boosted benchmarks. Improved investor confidence data from Germany and positive news from Japan reduced worries about global growth.
The Dow This Week
The Dow swung between small gains and losses on Monday before ending marginally higher, adding a meager 0.04%.
Energy shares weighed on the Dow. Energy stocks fell due to drop in oil prices. Oil prices fell ahead of Organization of Petroleum Exporting Countries’ meeting on Thursday.
Telecom shares also weighed on the Dow. Shares of Verizon Communications Inc. (VZ) and AT&T, Inc. (NYSE:T)) dropped 1.4% and 1.6%, respectively. A drop in share price of United Technologies Corp. (UTX) too had a negative impact on the blue-chip index. Shares of the diversified industrial conglomerate declined 1.4% after the company’s Chief Executive Officer retired and was replaced by the finance head.
However, investors continued to be encouraged by efforts from China and Europe to boost their economies. Equities in China and Hong Kong went up after People’s Bank of China lowered its key interest rates last Friday.
European markets were also boosted after the ECB’s declaration last Friday that it has started purchasing asset-backed securities in order to revive the economy. Retail stocks surged as investors believe lower gasoline prices will boost retail sales this holiday season.
Benchmarks finished almost unchanged on Tuesday as investors received mixed economic data while a slump in oil prices dragged energy shares down. While revised third-quarter GDP came in better-than-expected, data on consumer confidence and home prices were discouraging.
According to the “second” estimate by the Bureau of Economic Analysis, third quarter GDP increased at an annual rate of 3.9%, more than the consensus estimate of an increase by 3.3%. The Dow snapped a three-session winning streak and ended in the red, losing a meager 0.02%.
The Dow gained 0.1% on Wednesday following gains in technology and telecom stocks. The blue-chip index closed at a record level for the 30th time this year. Wednesday’s trading volume was light owing to the holiday mood. Markets were closed on Thursday for the Thanksgiving holiday. Also, Friday will be a half-day trading session.
Meanwhile, the day’s largely discouraging economic data failed to have a negative impact on investor sentiment. Personal income increased 0.2% in October, less than the consensus estimate of a rise by 0.4%. The University of Michigan and Thomson Reuters’ final reading of consumer sentiment was at 88.8, less than the consensus forecast of an increase to 90.
Moreover, increase in applications for unemployment benefits reached the highest level in 11 weeks. Additionally, pending home sales declined 1.1% to 104.1 in October. The day’s gains were also limited by another slump in energy shares.
Components Moving the Index
IBM Corp. (NYSE:IBM)) and Ericsson (NASDAQ:ERIC) have recently entered into a partnership to research and develop 5G antennas, which will raise the data speed currently available in the U.S.
Per the deal, IBM and Ericsson will begin research on phased-array antenna techniques to initially develop a prototype system to be used on mobile devices. The research, if successful, will usher in a new age network technology to bridge the gap between current data speed demand and availability.
Merck (MRK) announced an exclusive worldwide license agreement with NewLink Genetics Corp. (NASDAQ:NLNK) to research, develop, manufacture and distribute the latter’s Ebola vaccine candidate, rVSV-EBOV.
Per the agreement, Merck will have the exclusive right to the candidate along with any other follow-on product. The Public Health Agency of Canada, which initially developed the vaccine candidate and has an exclusive licensing arrangement with a wholly owned subsidiary of NewLink, will retain the non-commercial rights.
NewLink will receive $50 million from Merck as per the agreement including a $30 million upfront payment and $20 million upon the initiation of effectiveness trials on the candidate. These trials are to start in the first quarter of 2015.
United Technologies Corp. announced that CEO Louis Chenever was retiring and current CFO Gregory Hayes will succeed him. While the company did not offer any reason behind the sudden change in positions, a company spokesman asserted that it was not related to financial performance.
Chenever will also step down from his post as the chairman, and his retirement from both posts is effective immediately.
Chenever led the industrial conglomerate for six years, and pioneered the company’s strategic makeover, by betting on new jet-engine technology and the swift urbanization of emerging markets, especially China.
Wal-Mart Stores Inc. (WMT) has doubled the number of deals on Cyber Monday this year and also slashed the prices of a number of items on offer by half.
Last week, the company had announced its decision to stretch the Black Friday (Nov 28) deals over five days starting from Thanksgiving Day (Nov 27) til Cyber Monday (Dec 1), per reports.
Like the Black Friday week, Walmart will celebrate its Cyber Monday from Nov 29 through Dec 5, and will offer 500 online deals this year on electronics, toys, apparel, home decor and more on Walmart.com.
Also, customers getting paychecks on Cyber Monday can deposit their checks at Walmart stores and also take advantage of Walmart.com’s Pay with Cash program.
Intel Corp. (NASDAQ:INTC) initiated guidance for 2015. It projects sales to grow in the mid-single digits, gross margin to be about 62% (+/- 2 percentage points) and research & development plus MG&A spending of approximately $20 billion. Capital spending is expected to be around $10.5 billion, down from $11 billion projected for 2014.
Analysts had projected sales growth of 3%. The board of directors of Intel approved a 6.7% hike in its annual dividend. The new dividend comes to 96 cents per share, up from the last payout of 90 cents. The increased dividend will be paid beginning with the dividend that will be announced in the first quarter of 2015.
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%.
Next Week’s Outlook
Oil prices have made a comeback, influencing market direction for much of the holiday-shortened week. Energy shares have suffered as a result, leading to limited gains for the Dow. In contrast, dismal economic data have had little impact on markets as a whole.
Despite that fact, next week has several important economic reports lined up. This includes crucial data on manufacturing, services, construction spending and unemployment. However, it is likely that International developments and oil prices on the economic fronts will continue to influence market movements going forward.