The Dow started the week on a poor note before recovering considerably. The blue-chip index slumped on Monday with energy shares leading the decline due to another slump in oil prices. Benchmarks continued to suffer losses on Tuesday due to continued decline in oil prices.
The Dow rebounded on Wednesday following a rebound in oil prices and better-than-expected private sector jobs report. The blue-chip index experienced its best day on Thursday since Dec 18, 2014. The Dow has gained 0.4% during the first four trading days.
Last Week’s Performance
Last Friday, stocks finished the first trading session of 2015 almost unchanged while investors received discouraging economic data. However, the Dow ended its three-straight session losing streak and closed with meager gains of around 0.1% on Friday. Indexes gave away their initial gains following a slowdown in U.S. manufacturing and construction spending.
The ISM Manufacturing Index dropped 3.2 percentage points from November’s reading of 58.7% to 55.5%. Separately, construction spending came in at $975 billion in November. This was 0.3% lower than the revised October estimate of $977.7 billion.
Over the week, the Dow declined 1.3%. Meanwhile, benchmarks snapped a two-week winning streak and settled in the red for the holiday-shortened week. Benchmarks settled in the negative territory for the week as renewed political unrest in Greece continued to weigh on investor sentiment. Greece is expected to head to polls in early 2015 after the country’s parliament rejected Prime Minister Antonis Samaras’ preferred presidential candidate in a third and final vote on Monday.
Disappointing economic reports on jobless claims and growth in business activity in 2014 too had a negative impact on investor sentiment. Separately, slump in םil prices weighed on energy shares on the last trading day of 2014. However, benchmarks finished in the green last month and for 2014, banking on overall positive economic scenario in the U.S.
The Dow This Week
The Dow slumped 1.9% on Monday with energy shares leading the decline due to another slump in oil prices. This was the blue-chip index’s largest one-day percentage decline since Oct 2014. The Dow also had its worst day since October, with just 2 out of its 30 components ending in positive territory.
Rise in crude output from key producers including Russia and Iraq came in at a time when analysts have cut their demand outlook due to weak global economic scenario. While Russian oil output touched a post-Soviet era peak, Iraq’s oil exports was at a 35-year high.
Moreover, a rally in the greenback weighed on Dollar-denominated commodities, dragging oil prices below the psychological level of $50 a barrel for the first time in more than five years. Meanwhile, investors remained concerned about the political uncertainty emanating from Greece.
Benchmarks continued to suffer losses on Tuesday due to another slump in oil prices. Separately, fund manager Bill Gross’ comments that ‘many’ asset classes will end this year with losses also weighed on investor sentiment.
Further, data showing weaker-than-expected growth in the U.S. service sector and a drop in factory orders for four consecutive months weighed on investor sentiment. ISM Services Index decreased to 56.2% in December from November’s reading of 59.3%. Separately, new orders for manufactured goods decreased 0.7% in November, following a similar decline in October.
The Dow rebounded on Wednesday, gaining 1.2% following a rebound in oil prices and better-than-expected private sector jobs report. Oil prices snapped a four-day losing streak and ended higher on Wednesday. Oil prices made a comeback after the U.S. Energy Information Administration (EIA) reported that U.S. crude inventories dropped last week. The national employment report from Automatic Data Processing, Inc. (ADP) showed private sector hiring improved in December.
Minutes of the Federal Open Market Committee noted that they “would want to be reasonably confident that inflation will move back toward 2% over time.” Investors were also enthused over a possibility of additional stimulus measures in the Eurozone. A drop in Eurozone Consumer Price Index (CPI) increased pressure on the European Central Bank to begin quantitative easing program at its January meeting. Moreover, Germany’s initiative to hold discussions with Greece’s next government on issues related to the debt crisis eased concerns over a Greek exit from the European Union.
The Dow experienced its best day on Thursday since Dec 18, 2014, gaining 1.8%. Benchmarks turned positive for the year on Thursday after investors welcomed firming up of oil prices and accommodative monetary stance by the Fed and ECB. The Federal Reserve Bank of Chicago President Charles Evans said Fed may not touch its target inflation rate of 2% until 2018. Further, he believes the central bank should not hike interest rates until next year.
Additionally, ECB President Mario Draghi in a letter to European lawmakers said the apex bank will reassess its monetary-policy and may take necessary steps such as buying sovereign bonds to boost growth prospects in the Eurozone.
Components Moving the Index
Pfizer Inc (NYSE:PFE) announced that it has acquired a controlling interest in Redvax Gmbh, a spin-off from Swiss biopharma company Redbiotec AG. With this acquisition, Pfizer’s vaccine pipeline will gain a preclinical human cytomegalovirus (CMV) vaccine candidate.
While financial details of the agreement were not disclosed, Pfizer said that together with the vaccine candidate it has also bagged intellectual property and a technology platform related to a second, undisclosed vaccine program.
With the addition of the CMV vaccine program, Pfizer will be one of the leaders in CMV research and development. CMV, a herpes virus, is estimated to infect about 50% - 90% of adults.
Microsoft Corporation (NASDAQ:MSFT) unveiled a new affordable Nokia Oyj (NYSE:NOK) Internet-ready mobile phone called Nokia 215 for the entry-level market. The Nokia 215 will be priced at $29 pre-tax and will be available in the first quarter of 2015 in selected markets such as the Middle East, Africa, Asia and Europe. Microsoft hasn’t announced any U.S. plans as of now.
The latest move will help Microsoft broaden its footprint in the fast-growing entry-level mobile phone market. It will help the software maker target first-time mobile phone buyers globally.
3M Company (NYSE:MMM) recently completed the divestiture of its Static Control business to Desco Industries, Inc. for an undisclosed amount. Desco is a global provider of Electrostatic Discharge (ESD) control products that are primarily used in the electronics production industry.
3M's Static Control business offers products and solutions that help prevent, detect and protect against ESD events. 3M’s Static Control business has annual revenues of about $45 million globally. By divesting this business, 3M intends to concentrate more on its core operations.
In another development, 3M announced the launch of its first Petrifilm Aerobic Count Plate, which uses a simple procedure to detect aerobic bacteria counts accurately and easily in just 24 hours for most food matrices.
Chevron Corporation (NYSE:CVX) has made another important oil discovery in the Gulf of Mexico (GoM). The deepwater find, at its Anchor prospect, is the second by the company in the region, within the span of a year.
The discovery was made through Well No. 2 in the Green Canyon Block 807, which is located about 225 kilometers offshore Louisiana. The discovery well, spudded in Aug 2014, was drilled to a depth of 10,287 meters and found oil in multiple Lower Tertiary Wilcox Sands. Chevron added that the appraisal drilling of the well will commence this year. Chevron U.S.A. Inc., a subsidiary of Chevron, operates the Anchor prospect with a 55% working interest.
Intel Corporation (NASDAQ:INTC) unveiled its 14 nanometers (nm) Broadwell fifth-generation core processors at the Consumer Electronics Show ("CES") 2015.
Built on Intel's 14nm manufacturing process and Broadwell architecture, the new processors offer high performance, visuals and improved battery life. The Broadwell core processor reduces the size of the chips’ transistors from 22 to 14 nm and has around 35% more transistors than the previous generation. This boosts graphics and system performance.
IBM (NYSE:IBM) recently opened a new data center in Frankfurt, Germany. This initiative is believed to be a part of IBM’s $1.2 billion investment plan intended to extend the company’s cloud footprint worldwide.
This new data center is expected to improve application performance by lowering latency for local customers. This, in turn, will enable German companies and people to meet the stringent German and European data security and sovereignty laws.
Johnson & Johnson (NYSE:JNJ) announced that it has commenced a phase I study on a preventive Ebola vaccine, which is being developed by its subsidiary Janssen Pharmaceuticals. The study is of the first-in-human type and aims to evaluate the safety and tolerability of the Ebola vaccine regimen.
This study will evaluate different regimens combining the vaccine components or placebo in 72 healthy adult volunteers. While the first set of volunteers has already received an initial dose of the vaccine, patient enrolment in this study is expected to be completed by the end of this month.
Additionally, J&J has updated its projection regarding the production of Ebola vaccine regimens in 2015. The company said that a total of 2 million regimens will be available throughout 2015 with an added capacity of scaling up to 5 million over a 12- to 18-month period.
JPMorgan Chase & Co (NYSE:JPM) has agreed to pay $100 million as settlement in response to a U.S. antitrust lawsuit filed in 2013 by investors against 12 major banks including JPMorgan for price manipulations in the foreign exchange (FX) market, as reported by Reuters.
A letter filed with the US district court in Manhattan revealed the settlement between both the parties. However, the court’s approval is still pending and the settlement papers are expected to be submitted in the court this month.
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 lost 0.9%.
Next Week’s Outlook
Stocks have recovered considerably after a recovery in oil prices. Investor sentiment has also received a boost from statements made by the Fed and the ECB. Concerns that Greece might exit the Eurozone have also eased. Meanwhile, private sector data has indicated that the domestic employment situation has improved considerably.
However, other domestic economic reports released recently have been disappointing in nature. This includes data on manufacturing, services, factory orders and the construction spending. Starting with government jobs data released today, several important economic reports are slated for release shortly. This includes reports on retail sales, inflation and industrial production among others. Any positive indications on this front will only help stocks mop up wider gains in the days ahead.