The Dow had a mixed week after World Bank data and the Iraq
crisis ended a period of considerable gains. Mergers and
acquisitions helped the blue chip index close at a record level for
the ninth time this year on Monday. Investors took a breather on
Tuesday, but the Dow still managed to inch upward. The blue chip
index snapped a four day rally on Tuesday after the World Bank
lowered global growth projections. The Iraq conflict and dismal
economic data pushed the Dow lower on Thursday. During the first
four trading days, the Dow has lost 1.23%.
Last Week's Performance
The Dow gained 0.5% on Friday following the encouraging nonfarm
payroll report for May. Investor sentiment turned bullish after the
U.S. Bureau of Labor Statistics said total nonfarm payroll
employment jumped 217,000 in May, more than the consensus estimate
of a rise by 213,000. Nonfarm payroll jobs increased by over
200,000 for the fourth straight month in May, a stretch last seen
in January 2000. Unemployment rate stayed flat at 6.3%.The
blue-chip index also closed at a record level for the eighth time
For the week, the Dow gained 1.2%. The blue-chip index recorded its
strongest weekly percentage gains since April 17. Benchmarks ended
in positive territory for the week following the announcement of
several stimulus measures by the European Central Bank (ECB). The
central bank reduced the refinancing rate to 0.15% from 0.25% and
the marginal lending facility to 0.40% from 0.75%. ECB also cut
deposit rates to minus 0.10%.
ECB deployed a series of targeted long term refinancing operations
and announced that it will halt sterilizing purchases under its
Securities Market Program. Separately, ECB President Mario Draghi
said preparations for outright purchases of asset-backed securities
Encouraging services sector report and upbeat ISM manufacturing
data also helped the benchmarks finish in the green for the week.
The ISM Services Index in May touched the highest level since
August 2013, increasing 1.1 percentage points to 56.3% from April's
reading of 55.2%. The May 2014 Manufacturing PMI increased 0.5
percentage points to 55.4%.
The Dow This Week
Merger and acquisition activities and a rally in small-cap stocks
propelled benchmarks to record highs on Monday.
Merck & Co. Inc.
) agreed to acquire
Idenix Pharmaceuticals Inc.
) for $24.50 per share, which values the company at $3.85 billion.
The acquisition will give Merck access to Idenix's treatments for
hepatitis C. Shares of Idenix Pharmaceuticals more than tripled,
gaining a significant 229.1%. Shares of Merck also increased 0.2%.
The blue-chip index gained 0.1%.
The Dow gained a meager 0.02% on Tuesday after investors took a
breather. However, the minute gains helped the blue-chip index
close at a record level for the tenth time this year. Wholesale
inventories increased 1.1% in April, beating the consensus estimate
of an increase of 0.5%. Job openings at US workplaces rose to 4.46
million in April from 4.17 million in March, more than analysts'
expectations of a rise to 4.03 million. However, these reports
hardly impacted the markets.
Benchmarks dropped the most in three weeks on Wednesday after World
Bank lowered projections for global economic growth. The Dow
snapped a four-day rally of record high closes, declining 0.6%. The
blue-chip index also closed 157 points away from its key technical
level of 17,000. The U.S. airlines industry was hit hard after
Deutsche Lufthansa AG lowered its earnings forecast for 2014 and
2015. Investors were also concerned over U.S. House Majority Leader
Eric Canton's defeat in the primary election.
The Dow lost nearly 0.7% following a spike in crude
and discouraging economic data. Investors were worried about the
extent to which the Iraq crisis could affect the nation's oil
supply. Moreover, less-than-forecasted retail sales growth and an
unexpected rise in unemployment benefits also dented investor
sentiment. The blue-chip index declined for two-consecutive
sessions, a losing streak last seen almost a month ago.
Components Moving the Index
) has approved a 17% increase in its quarterly dividend, the
highest percentage increase since 2010. The hike also reflects its
balance sheet strength.
Caterpillar will now pay 70 cents per share to its shareholders
every quarter, 10 cents more than the prior dividend of 60 cents
per share. The increased dividend will be paid on Aug 20, 2014, to
shareholders of record as of Jul 21, 2014. The current dividend
hike comes exactly after a year.
The last dividend hike of 15% from 52 cents to 60 cents was
announced in Jun 2013. At current levels, Caterpillar's 5 year
average dividend yield of 2.25%, 5 Year dividend growth rate of
6.70% and payout ratio of 38.97% are above the industry average of
1.98%, -4.44% and 14.27% respectively.
The Boeing Co
) stock price dropped over 2% on Wednesday, the most in the last
two months. The stock emerged as the biggest loser in the blue chip
index, following the defeat of U.S. House Majority Leader Eric
Cantor of Virginia in a primary election.
The defeat came as a blow to the aerospace giant as the market
views the development as a threat to congressional reauthorization
of the Export-Import Bank of the U.S. (Ex-Im Bank), the official
export credit agency of the country.
The Ex-Im agency assists in financing the export of U.S. goods to
international markets and facilitates foreign airlines that do not
have the necessary resources to purchase expensive aircraft. Boeing
had expected this Ex-Im service to fetch $10 billion in sales this
year. The Republican to whom Cantor lost had earlier indicated that
the U.S. should exit the Ex-Im facility in a drive to cut
government spending. Now, Boeing investors are worried the company
will lose out on potential sales.
Exxon Mobil Corp.
) may acquire independent oil and natural gas exploration and
production (E&P) company Anadarko Petroleum Corp. (APC),
according to market sources. Following the rumour, trading volume
of Anadarko Petroleum jumped 211.6% to 11,688,364 on Jun 11
compared to its last 10 days average volume.
Shares of Anadarko Petroleum hit its 52-week high of $109.00 on Jun
11 following the news. Finally, the shares closed at $108.32, up
roughly 4.2% from the previous day's closing.
) recently unveiled Toshiba's pocket-friendly Encore tablet with a
7-inch display and running on Windows 8.1 at Computex 2014. The
device has been built by Toshiba, in association with Microsoft,
Intel (INTC), Goodix, and AMI, and is the smallest size Windows
slate to date.
The device is expected to be available for sale in the coming
months, first in the U.S. followed by a worldwide release. However,
details regarding its price were not disclosed.
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 0.82%.
Last 5 Day's Performance
6 Month Performance
Next Week's Outlook
Disappointing data from the World Bank has ended a period of
considerable gains for the Dow this week. The effects of this
announcement may not spill over into next week. However, the
conflict in Iraq and its impact on oil prices could hurt benchmarks
in the days ahead. But positive economic data could go a long way
in helping the blue chip index notch up gains.
Incidentally, next week has several important economic reports
lined up. This includes data on industrial production, housing,
inflation and leading indicators. Going forward, positive
indications from these releases can easily change the fortunes of
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BOEING CO (BA): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis
CATERPILLAR INC (CAT): Free Stock Analysis
EXXON MOBIL CRP (XOM): Free Stock Analysis
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