The Dow gained significantly this week, powered by strong indications of a rate hike in December and upbeat earnings results. The index moved upward on Monday, following significant gains for energy shares. The Dow gained marginally on Tuesday amid upbeat retail earnings data, lingering terror concerns and a drop in global oil prices .
The blue-chip index advanced on Wednesday after minutes from last month's Fed meeting confirmed that "most participants" were open to a rate hike in December. The index inched down on Thursday after declines in energy and healthcare stocks curbed tech sector gains. The Dow has gained 2.8% during the first four trading days.
Last Friday, the Dow dropped 1.5% following declines in retail and technology shares. Discouraging earnings results from departmental stores adversely affected investor sentiment. Weaker-than-expected retail sales data also added to the dour mood. Meanwhile, Cisco Systems, Inc.'s CSCO disappointing earnings and revenue forecast for the current quarter had a negative impact on technology shares.
Weak retail sales data also dented investor sentiment. U.S retail sales increased only 0.1% in October. The metric was held down mostly by lower spending in auto dealers, gas stations and grocery stores.
PPI decreased 0.4% in October, in contrast to the consensus estimate of an increase by 0.2%. The Thomson Reuters/University of Michigan's preliminary October consumer sentiment reading came in at 93.1, higher than the consensus estimate of 91.2.
For the week, the blue-chip index declined 3.6%. Benchmarks snapped a six-week winning streak and posted their largest weekly losses since the week ended Aug 21. Broader markets declined following a sell-off in energy and retail shares. Energy shares were adversely affected due to decline in oil prices, which took a beating on oversupply concerns. Rate hike fears and global growth worries fueled by China's economic situation also weighed on investor sentiment.
The Dow increased 1.4% on Monday, following significant gains for energy shares. An increase in the U.S. traded crude oil price was responsible for these gains. The U.S. oil price moved north on possibilities of greater violence in the Middle East, a possible outcome of the Paris attacks on last Friday. However, investors shook off concerns about the Paris attacks, believing that it would not have a lasting impact on the U.S. economy and corporate earnings.
Decline in oil production levels by Organization of the Petroleum Exporting Countries (OPEC) in October to its lowest level since May also boosted U.S. crude oil prices . OPEC's oil production in October fell by 120,000 barrels a day from a month earlier, its third straight monthly decline. Major index components Exxon Mobil Corporation XOM and Chevron Corporation CVX gained 3.6% and 4.4%, respectively.
The index gained a meager 0.04% on Tuesday amid upbeat retail earnings data, lingering terror concerns and a drop in global oil prices. Encouraging quarterly earnings results from Wal-Mart Stores Inc. WMT and The Home Depot Inc. HD boosted the broader markets. Shares of Wal-Mart and Home Depot advanced 3.5% and 4.4%, respectively.
However, stocks struggled to hold on to their gains in late afternoon trade following news that a friendly soccer match between Germany and Netherlands was called off two hours before the start of play due to a possible terror threat.
Additionally, energy shares took a beating due to drop in oil prices. Concerns about oversupply of oil were primarily responsible for dragging oil prices lower. CPI increased 0.2% in October, in line with the consensus estimate. Meanwhile, industrial production declined 0.2% in October after slipping 0.2% in September.
The Dow added 1.4% on Wednesday after minutes from last month's Fed meeting confirmed that "most participants" were open to a rate hike in December. The majority of Fed officials anticipated that conditions to lift short-term interest rates "could well be met by the time of the next meeting" in December. The Fed is waiting to see further improvements in labor market conditions and inflation touching its target rate of 2% before hiking rates.
Most Fed officials opined that economic conditions could be strong enough to sustain a December rate hike. This boosted the broader markets and helped the blue-chip index extend its three-day winning streak on Wednesday.
Meanwhile, construction of new homes touched its lowest level in October since early spring. Housing starts decreased 11% from September. However, permits for single-family houses increased 4.1% to touch its highest level in October since the end of 2007.
The index inched down on Thursday, losing 0.02% after declines in energy and healthcare stocks curbed tech sector gains. Shares of UnitedHealth Group Inc. UNH declined 5.7% and was primarily responsible for the Dow's losses; resulting in a 44-point loss for the index. The health insurer suffered losses after trimming its earnings projections for the year.
Also, UnitedHealth said it also stands to lose from its participation on exchanges created by the Affordable Care Act and was considering a withdrawal. Shares of Pfizer Inc. PFE lost 3.1% following news that it may soon purchase Allergan and relocate its headquarters to Ireland.
Shares of Chevron and Exxon Mobil lost 1.5% and 0.5%, respectively. These losses negated gains from tech stocks. Shares of Intel Corp. INTC gained 3.4% after the chipmaker raised its quarterly cash dividend by 8% to $1.04 on a yearly basis. Also, shares of Apple Inc. AAPL moved 1.3% higher.
Meanwhile, jobless claims declined by 5,000 in the week ending Nov 14 to 271,000. The Leading Indicators Index increased 0.6% in October, marginally higher than expectations of a 0.5% increase.
Home Depot posted fiscal third-quarter adjusted earnings of $1.36 per share, which increased 18.3% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.32.
Net sales advanced 6.4% to $21,819 million from $20,516 million in the year-ago quarter and were also ahead of the Zacks Consensus Estimate of $21,751 million. The company's overall comparable-store sales (comps) increased 5.1% while comps in the U.S. grew 7.3%.
Home Depot now envisions diluted earnings per share to grow 14% to $5.36 per share. Earlier, the company had projected earnings per share growth of 13%-14% and earnings of $5.31-$5.36 per share.
Wal-Mart reported fiscal third quarter 2016 earnings of $1.03 per share beat the Zacks Consensus Estimate of 97 cents by 6.2%. However, the figure was 10.4% lower than year-ago earnings from continuing operations of $1.15 per share. However, earnings were within management's guided range of 93 cents to $1.05 per share.
Total revenue of the retailer was $117.4 billion (including membership and other income). Revenues missed the Zacks Consensus Estimate of $117.9 billion by 0.4% and decreased 1.3% year over year. Currency depleted sales by approximately $5 billion.
In the fourth quarter of fiscal 2016, earnings are expected in the range of $1.40 to $1.55 per share, compared with the prior-year quarter's earnings of $1.53 per share. Wal-Mart expects U.S. comp sales growth in the range of around 1% for the 13-week period ending Jan 29 compared with 1.5% comps growth last year.
NIKE Inc.NKE unveiled a new share repurchase program worth $12 billion. The company also raised its dividend and announced a two-for-one stock split.
Nike revealed that under the new $12 billion buyback plan, it will repurchase its class B shares over a four-year term. However, the company will begin buying back shares under the program only after the conclusion of its existing $8 billion plan, which is likely to be completed before the end of fiscal 2016.
Coming to the stock split, the company's board of directors stated that it will split its class A and class B shares in a two-for-one ratio. The split will be distributed in the form of a dividend, which will be paid on Dec 23, 2015 to stakeholders of record as on Dec 9, 2015.
Further, the company raised its quarterly cash dividend on both class A and class B shares by 14% to 32 cents per share, on a pre-split basis. The dividend is payable on Jan 4, 2016 to shareholders as of Dec 9, 2015. This marks the company's 14th consecutive yearly dividend hike, bringing Nike's annualized dividend rate to $1.28.
The Goldman Sachs Group, Inc. 's GS private equity division, along with a buyout firm Thomas H. Lee Partners LP, has inked a deal to acquire janitorial provider GCA Services Group, Inc. from The Blackstone Group L.P. BX .
Though the financial terms of the deal were kept under wraps, market rumors estimate the transaction value at approximately $1 billion, including debt. Further, the deal, subject to customary closing conditions, is projected to close in the first quarter of 2016.
The Boeing Co.BA and Lockheed Martin Corp's LMT joint venture United Launch Alliance ("ULA") has won a modification contract worth $373.3 million from the U.S. Air Force to provide launch vehicle production services for National Reconnaissance Office ("NRO") rockets.
The contract includes support for launch vehicle configurations of an NRO Atlas V 421 and an NRO Delta IV Heavy rocket. It includes two pre-priced contract line items for the Atlas V 421 and Delta IV Heavy launch vehicle configurations. The contract is expected to be completed by Jan 30, 2019.
The Coca-Cola CompanyKO raised its projections regarding the negative impact of currency translation on fourth-quarter sales and profits. Foreign exchange is expected to hurt fourth-quarter sales, operating income and profit-before-tax by 7%, 13% and 11%, higher than previous expectations of 6%, 12% and 10%, respectively.
However, currency neutral earnings per share (EPS) growth outlook remained unchanged. Fourth-quarter comparable currency neutral EPS is likely to decline in a mid-to-high single-digit range.
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 1%.
Last 5 Day's Performance
Next Week's Outlook
The Fed minutes has provided sufficient indications of a rate hike in December. Meanwhile, its positive take on the economic situation has boosted broader markets. This week's initial claims data was also encouraging in nature. Reports on inflation were mixed and the Fed has stated that it is looking for further positive indications on the economic front before firming up its decision.
Upbeat earnings have also helped push stocks higher this week. Meanwhile, most international events had little bearing on market proceedings. China's economy ceased to be a constant worry for investors who remained largely unaffected by the fallout of last Friday's terror attacks in Paris. Only oil prices continue to have any significant impact on market movement.
Next week features economic reports on home sales, durable orders, personal spending as well as crucial data on GDP. Any positive indications on this front will help stocks mop up gains in the days ahead.
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