The Dow 30 had a largely positive week, but for Wednesday when it declined marginally. A rally in healthcare and transportation stocks boosted the blue-chip index on Monday. The Dow gained meagerly on Tuesday in the absence of significant developments that could guide the markets. Investors weighed a series of new developments on Wednesday, as the Dow slipped marginally.
Encouraging results from a key component helped the blue-chip index end Thursday with gains. The Dow has gained nearly 0.5% during the first four trading days.
Last Week’s Performance
Stocks were little changed on Friday after reports that the U.S. nonfarm payroll employment increased at a slower pace than expected, while unemployment rate declined to a six-year low. Nonfarm payroll employment increased 214,000 in October, less than the consensus estimate of an increase by 235,000. Meanwhile, the unemployment rate edged down to 5.8% in October from September’s 5.9%.
The Dow gained 0.1%, which was enough to help it touch a record high for a third consecutive session. Healthcare stocks slumped on Friday after the U.S. Supreme Court decided to hear a new challenge to a crucial part of the Affordable Care Act. Meanwhile, The Walt Disney Company ended fiscal 2014 on a high note. However, profit from its biggest division, TV Networks, decreased. Shares dropped 2.2%.
For the week, the Dow gained 1%. Last week, the European Central Bank’s (ECB) President Mario Draghi’s statement regarding possible expansion of monetary stimulus by the ECB improved investor sentiment.
US midterm election results also helped the rally. The Republicans notched a strong win in the midterm elections over the Democrats by having a majority in both chambers of Congress for the first time since 2006. Investors cheered the results as they expect that Republicans winning both chambers should help clear many bills. Encouraging economic data and some upbeat earnings results too had positive impact on the benchmarks.
However, benchmarks were under pressure on the first two days of the week, as oil prices ended lower. Saudi Arabia’s decision to reduce export prices of crude for the US market, while hiking them for Asia was the major trigger for the decline in oil prices. Nonetheless, oil prices snapped four sessions of losses last Wednesday.
The Dow This Week
The Dow gained 0.2% on Monday, boosted by a rally in healthcare and transportation stocks. The SPDR - Health Care (ARCA:XLV) gained 1%, the highest among the S&P 500 sectors. Meanwhile, gains among transportation shares lifted the broader market. The Dow Jones Transportation Average climbed 1.3%, to close at a record high of 9,068.48. The blue chip index’s modest gains helped the index settle at a record high for the fourth consecutive session. The Dow closed at a record level for the 23rd time this year.
Benchmarks were little changed on Tuesday as investors hardly found any reason to place big bets. The day was devoid of any major news that could move the markets significantly on either side. Trading volumes were light and the bond market was closed due to the U.S. Veterans Day holiday. However, the Dow posted modest gains that helped the index to settle at a record high for the fifth successive session.
The blue-chip index gained a meager 0.01%, to close at a record level for the 24th time this year. During the intra-day session, the blue-chip index gained 24 points and also dropped as much as 28 points. Among the decliners were cable providers whose shares took a beating for the second-straight session. Shares of cable providers dropped after U.S. President Barack Obama said on Monday that the Federal Communications Commission should regulate broadband like a public utility.
The Dow lost 0.02% on Wednesday, snapping a five-session winning streak to end in the red. Stocks finished Wednesday’s choppy trading session little changed as investors weighed a series of new developments. Global regulators fines on major banks, drop in oil prices, and the U.S and China’s effort to curb carbon emissions had a negative impact on financial, energy and utility sectors, respectively.
Meanwhile, investors remained concerned about the Eurozone’s weak economy. European Central Bank President Mario Draghi’s possible expansion of monetary stimulus has met resistance from German Chancellor Angela Merkel. Inventors also remained anxious on the latest developments in Ukraine. There has been news that Russian troops have entered Ukraine.
Encouraging quarterly results from Wal-Mart Stores Inc.’s stores helped the Dow close at a record high for the 25th time this year on Thursday. Another Dow component, Microsoft Corporation went up 1.7% and became the second-largest publicly traded U.S. company. Microsoft’s market capitalization swelled above $407 billion.
Energy shares were hit hard for the second consecutive day due to slump in oil prices. Shares of key energy stocks including Exxon Mobil Corporation, Chevron Corporation decreased 0.8% and 1% respectively. Seasonally adjusted initial claims increased 12,000 to 290,000 in the week ending Nov 8. This increase in applications for unemployment benefits reached the highest level in two months. The blue-chip index gained 0.2%
Components Moving the Index
Wal-Mart Stores Inc's (NYSE:WMT) third quarter fiscal 2015 earnings came in line with estimates, while revenues were better-than-expected. The company however narrowed its guidance for fiscal 2015.
Walmart’s fiscal third quarter 2015 adjusted earnings of $1.15 per share matched the Zacks Consensus Estimate and increased 0.9% from the year-ago earnings of $1.14 per share. Positive comps at Walmart U.S. improved performances in Sam's Club and the international business and a lower-than-anticipated tax rate contributed to earnings, which remained within management’s guidance range of $1.10 and $1.20 per share.
Total revenue increased 2.9% to $119.0 billion (including membership and other income) and beat the Zacks Consensus Estimate of $118.3 billion. Walmart narrowed its fiscal 2015 earnings guidance to a range of $4.92 to $5.02 per share from the previous range of $4.90 to $5.15.
Cisco Systems Inc (NASDAQ:CSCO) reported first-quarter fiscal 2015 earnings of 48 cents, in line with the Zacks Consensus Estimate of 48 cents. The adjusted earnings per share exclude one-time items but include stock-based compensation expenses.
Revenues decreased 0.9% sequentially but increased 1.3% year over year to $12.23 billion and surpassed the Zacks Consensus Estimate of $12.13 billion.
On a year-over-year basis, products (77.1% of total revenue) were up 0.4% to $9.4 billion and Services (22.9% of total revenue) rose 4.5% to $2.8 billion. Product book-to-bill ratio was below 1.
Following the earnings results, Cisco’s share price plunged 1.6% on weaker-than-expected guidance. The company trimmed its second-quarter guidance after phone carriers like AT&T Inc (NYSE:T). lowered the 2015 capital spending by 14% on networking equipment.
For the second quarter of fiscal 2015, Cisco expects revenues to increase in the range of 4% to 7% on a year-over-year basis. Non-GAAP gross margin is expected to be within 61–62% and non-GAAP operating margin is expected to be 27.5–28.5% of revenues.
The Boeing Company (NYSE:BA)sealed yet another major deal for its 737 Max model from Japanese lessor SMBC Aviation Capital Ltd. Boeing has received orders for 80 737 Max airplanes, marking the largest single order from an aircraft lessor for this narrow-body jet. The deal is worth $8.5 billion at list prices.
The agreement further highlights a robust travel scenario in Asia with airlines increasingly boosting their fuel-efficient, single-aisle fleet. The deliveries are expected to run between 2018 and 2022. With this order, SMBC Aviation Capital happens to be the 50th 737 MAX customer.
The Walt Disney Company (NYSE:DIS) ended fiscal 2014 on a high note as movie business and Parks and Resorts continued with their fabulous run. The company’s fourth-quarter adjusted earnings per share came in at 89 cents, up 16% year over year and a penny ahead of the Zacks Consensus Estimate. Including one-time items, earnings came in at 86 cents, up 12%.
For fiscal 2014, adjusted earnings per share came in at $4.32, beating the Zacks Consensus Estimate of $4.31 while rising 27% year over year. Revenues came in at $12,389 million, up 7% year over year and ahead of the Zacks Consensus Estimate of $12,357 million.
JPMorgan Chase & Co (NYSE:JPM) has decided to slash another 3,000 jobs in its consumer and community banking (CCB) division by the end of this year in a bid to reduce expenses. At an industry conference in Boston, the bank recently disclosed its plan to cut 7,000 jobs in its mortgage-banking segment and 4,000 in other segments of the CCB arm, including the merchant services, cards and auto units by end-2014.
In February, JPMorgan had announced the curtailment of 6,000 jobs in the mortgage banking unit and 2,000 in rest of the CCB unit.
In the industry presentation, Gordon Smith, the CEO of Chase Consumer & Community Banking, revealed the company’s intention to reduce expenses in its consumer banking unit by $2 billion between 2014 and 2016.
Microsoft Corporation (NASDAQ:MSFT) has rolled out a smartphone, with a price tag of about $135, as it targets the emerging and other economical markets for growth. The latest model is the foremost under Microsoft's own brand. The company had rolled out some Lumia models since it purchased Nokia's phone business earlier this year, but those models carried the Nokia brand name.
Microsoft is coming out with two versions of Lumia 535. The other version will have slots for two SIM cards so that users can switch between service providers. Microsoft’s latest offering is expected to go on sale this month itself. Microsoft hasn’t announced any U.S. plans as of now.
AT&T Inc. has decided to acquire Mexico’s third largest wireless service provider Iusacell, controlled by Grupo Salinas. At present Grupo Salinas owns a 50% stake in Iusacell and intends to acquire the remaining 50% share from Grupo Televisa SA (NYSE:TV) for a consideration of $717 million.
On gaining full control over Iusacell, Grupo Salinas will divest the whole company including Iusacell’s wireless licenses, network assets and retail stores.
AT&T will pay a total consideration of $2.5 billion ($1.7 billion in cash plus acquisition of $800 million of Iusacell’s outstanding debt). However, the deal is subject to the regulatory approval of the Mexican telecom relator IFT (Federal Telecommunications Institute) and is expected to be closed by 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 0.8%.
Next Week’s Outlook
The Dow has managed to achieve record highs this week in the absence of major developments. The blue-chip index remained largely unchanged on two of the four trading days. On the other two, the index gained from a rally in specific sectors and bullish earnings, respectively. Economic data had no significant impact, but for a decline in oil prices.
Going forward, oil prices will possibly play a significant role in determining market movements. However, next week has some key economic reports scheduled for release. This includes data on inflation, housing and industrial production. Any positive news on this front could boost stocks in the days ahead.