The Dow had an excellent week, driven upward primarily by positive economic data. New deals and bullish consumer confidence data boosted the blue-chip index higher on Monday. Encouraging housing data and upbeat earnings results helped the Dow post gains on Tuesday.
The blue chip index managed to pare losses on Wednesday, following a choppy session after Fed minutes revealed differing views on the timing of a rate hike. A host of positive economic reports helped the Dow post gains once again on Thursday. The Dow has gained 1.2% during the first four trading days.
Last Week's Performance
The Dow dropped 0.3% last Friday after renewed tension between Ukraine and Russia unnerved investors. Benchmarks reversed initial gains after Ukraine forces destroyed part of a Russian armored column after it entered Ukrainian soil. The incident unnerved investors as they took money out of equities and parked them into safe-haven assets. Economic data came in mixed on Friday. Industrial production rose 0.4%, while PPI increased 0.1% in July.
For the week, the blue-chip index increased 0.7%. Benchmarks had gained last Monday following hopes that tensions between Russia and Ukraine would recede. On Thursday, Russian President Vladimir Putin's comments eased concerns related to geopolitical tensions.
Positive earnings results, gains in biotech stocks, ceasefire agreement in Gaza and subdued Chinese inflation data also boosted the markets. Downbeat European growth numbers, discouraging retail sales numbers and disappointing Germany's investor confidence data were some of the negatives for the week.
The Dow This Week
New deals, upbeat homebuilder confidence data and easing tensions between Russia and Ukraine handed markets strong gains on Monday. The NAHB/Wells Fargo Housing Market index rose 2 points to 55 in August, hitting its highest level in seven months. Homebuilder sentiment also rose for the third straight month in August. The blue-chip index registered its biggest one-day percentage gain since Aug 8, increasing around 1.1%.
The Dow gained 0.5% on Tuesday following encouraging housing data and upbeat earnings results. Housing starts surged 15.7% in July. Construction on new U.S. homes touched the highest level in July since Nov 2013. Building permits also increased 8.1% from June.
Strong earnings results from The Home Depot, Inc. ( HD ) were welcomed by investors. Home Depot advanced the most among the Dow components. The positives offset negative sentiment arising from ongoing geopolitical tensions in Ukraine.
Benchmarks finished a choppy session on a mixed note on Wednesday after Fed minutes showed officials had differing views about the timing of rate hike. The Dow finished in the green for the third straight day after it was able to pare losses following jitters from the Fed minutes.
Fed minutes showed some Fed officials were in favor of tightening monetary policy. They debated the timing of a rate hike following a recovery in the job market and pickup in inflation. However, there were other Fed officials who contradicted these views and sought further indications before deciding on hiking federal funds rate. The blue chip index gained almost 0.4%.
The Dow gained nearly 0.4% to close at its best level since Jul 24 on Thursday. Economic data on manufacturing, existing home sales, initial claims and leading economic indicators all came in positive. Existing home sales rose for the fourth consecutive month in July. The metric increased 2.4% touching the highest level since Sep 2013.
The Philadelphia Federal Reserve's manufacturing index surged to its highest level in August since Mar 2011. Additionally, claims for unemployment benefits declined in the week ending Aug 16. Meanwhile, investors waited for what Janet Yellen and Mario Draghi have to say at Jackson Hole, Wyo on Friday.
Components Moving the Index
The Home Depot Inc. reported year-over-year improvement in its financial results for the second quarter of fiscal 2014. The company's adjusted earnings of $1.52 per share jumped 22.6% from the year-ago quarter's earnings of $1.24 and surpassed the Zacks Consensus Estimate of $1.44.
This strong performance was primarily driven by the recovery in its spring season sales as well as strength in its core store activities and in all geographies. Net sales increased 5.7% to $23,811 million year on year and beat the Zacks Consensus Estimate of $23,570 million.
The company's overall comparable store sales (comps) increased 5.8% while comps in the U.S. stores grew 6.4%. The year-over-year improvement in top-line was mainly attributable to a 4.2% rise in the number of customer transactions and an increase of 1.8% in average ticket size.
Home Depot reaffirmed its sales growth outlook of 4.8% for fiscal 2014. However, the company raised its diluted earnings per share growth guidance for the fiscal to 20.2% from the earlier anticipated growth of 17.6%.
Wal-Mart Stores Inc. 's ( WMT ) shares went down 1% after it lowered its fiscal guidance. However, the company posted in-line earnings and better-than-expected revenues.
Walmart's fiscal second quarter 2015 adjusted earnings of $1.21 per share matched the Zacks Consensus Estimate. However, earnings declined 1.6% from the year-ago earnings of $1.23 per share due to soft comps in the U.S. and Sam's Club and a decline in operating income. Earnings were within management's guidance range of $1.15 and $1.25 per share.
Total revenue of the retailer increased 2.8% to $120.1 billion (including membership and other income) and beat the Zacks Consensus Estimate of $119.1 billion. The better-than-expected sales were encouraging as the company delivered weak results in the past five quarters due to a tough economic environment.
For the third quarter of fiscal 2015, Walmart expects its adjusted earnings to range between $1.10 and $1.20 per share, lower than last year's earnings of $1.24 per share. Walmart expects U.S. comp sales to be relatively flat for the 13-week period ending Oct 31, as against a decline of 0.3% last year.
Microsoft Corp. ( MSFT ) recently released WindUp for Windows Phone, an app that allows users to share messages, photos and videos, which are automatically deleted at a time preset by the user.
The app has reportedly been touted as a prospective competitor to Snapchat, which is still not available on the Windows Phone platform. However, Microsoft denied the reports, claiming that the app is a prototype launched on Windows Phone Store for only research purposes.
The WindUp app can be downloaded free by users of Windows Phone 8 or 8.1 to exchange self-destructive temporary messages, photos and videos where users can select a time depending on how long they want their message to last.
United Technologies Corp. ( UTX ) signed a licensing agreement with CGTech to integrate its PromptFM machining process optimization technology into the latter's VERICUT cutting process software. The combination is expected to enhance productivity for machining equipment operators, with applications in a wide spectrum of industries. The financial details of the agreement were kept under wraps.
CGTech specializes in computer numerical control (CNC) simulation software for manufacturing. Its flagship product, VERICUT software, has become the industry standard for simulating CNC machining. United Technologies' PromptFM, designed specifically to ensure compatibility with VERICUT.
The Goldman Sachs Group, Inc. ( GS ) stopped its attempt to dispose a $1billion lawsuit filed by the Libyan Investment Authority (LIA), a sovereign wealth fund at London's High Court. The company earlier looked for a summary judgment on the suit, but finally pulled its request back.
The lawsuit, filed in Jan 2014, pertained to dealings made by the company with the LIA in the earlier part of 2008. These had led to substantial losses for the sovereign fund. Eventually, it became apparent that Goldman had taken undue advantage of the trust LIA had placed on the Wall Street giant.
Goldman applied for the summary judgment request in Apr 2014 as it believed that the chances of LIA's success in a trial were dim. However owing to the withdrawal of its request, Goldman will face a court hearing, which is scheduled in early October. The company believes that "the case is entirely without merit."
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 1.7%.
Last 5 Day's Performance
Next Week's Outlook
A number of positive economic reports were released this week which helped the Dow notch up substantial gains. Data on housing, manufacturing, initial claims and leading economic indicators all came in positive. New deals and positive earnings also contributed to the gains over the week. The only jarring notes were differing views from the Fed on the timing of a rate hike and tension on the Ukrainian front.
As expected, with the earnings season winding down, economic reports have taken center stage and are guiding markets. Next week also has several key economic reports lined up. Data on housing, consumer confidence, durable orders and personal consumption are scheduled for release.
Additionally, the end of the week features the all-important GDP report. It is quite probable that next week will also largely be guided by economic data. Any good news on this front could see stocks trending even higher.
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