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The blue chip index had an excellent week on the back of bullish economic data and earnings numbers. New health sector deals and home sales data helped the Dow moved upwards on Monday. The Dow gained once again on Tuesday, boosted by upbeat earnings results.

The FOMC policy statement and other positive economic data helped the Dow end on a record high on Wednesday. However, the blue chip index dipped on Thursday as investors remained pensive ahead of crucial nonfarm payroll numbers. During the first four trading days, the Dow has gained 0.67%.

Last Week’s Performance

The Dow lost 0.9% on Friday due to disappointing earnings results and escalating tension between Russia and Ukraine. Upbeat quarterly results from Microsoft Corp. (MSFT - Analyst Report), reported after the closing bell on Thursday, failed to restrict the day’s losses. Encouraging economic data on consumer sentiment failed to make a difference to the bearish mood.

The blue chip index ended in the red for the week, losing 0.3%. Disappointing corporate results and discouraging economic data were the primary reasons for the decline. Verizon Communications Inc. (VZ - Analyst Report), 3M Company (MMM - Analyst Report), AT&T, Inc. (T - Analyst Report), posted dismal earnings numbers, which had a negative impact on the benchmarks.

Decline in new home sales data added to the bearish sentiment. Also, reports of military tension near the Ukraine border unnerved investors. An increase in Conference Board’s leading economic index and new deals in the health care sector failed to restrict the week’s losses.

The Dow This Week

The Dow returned to its winning ways on Monday. Benchmarks finished Monday’s choppy run mostly higher as investor sentiment improved following new deals in the health care sector and positive pending home sales data. Merger and acquisition activity in the health care sector also helped the Dow close in the green. The blue chip index moved up 0.5%.

Upbeat earnings results and gains in high-growth stocks helped the Dow gain 0.5% on Tuesday. Merck & Co. Inc. (MRK - Analyst Report) posted better-than-expected quarterly results. A fall in consumer confidence and rise in home prices had little impact on the market’s mood. Instead, investors chose to focus on the outcome of the FOMC meeting on Wednesday.

The Federal Reserve’s upbeat view on the economy’s prospects and their decision to further trim the monthly bond repurchase plan helped benchmarks end higher on Wednesday.  The day’s initial decline owing to weak first-quarter economic growth was completely offset by the time the session ended. The Dow closed at a record high, gaining 0.3%. Private-sector hiring numbers and manufacturing activity data for Chicago were the other positives of the day.

The blue chip index lost 0.1% on Thursday as investors took a cautious approach ahead of Friday’s nonfarm payroll report. The day’s mixed economic reports also had some negative impact on the Dow. The Institute for Supply management reported its April PMI had increased 1.2 percentage points from March’s adjusted reading of 53.7%. However, construction spending in March missed forecasts. Additionally, jobless claims reached their highest level since the end of February.

Components Moving the Index

Microsoft reported upbeat quarterly results, after the closing bell last Thursday. The software giant’s third-quarter earnings per share of 68 cents beat the Zacks Consensus Estimate of 62 cents per share. Shares of Microsoft had edged up 0.1% at the end of last Friday’s trading session.

Revenue of $20.40 billion was down 16.8% sequentially and 0.4% from last year, roughly in line with Zacks estimates. Management changed the operating structure at the beginning of fiscal year 2014. Accordingly, the company now has two main segments: Devices & Consumer (D&C) and Commercial.

D&C Licensing, hardware and other revenue made up 21%, 10% and 9% of quarterly revenue, taking the contribution of the Devices & Consumer segment to 40%.  For the fourth quarter, the company expects D&C licensing revenue of $4.1-4.3 billion, D&C hardware revenue of $1.3-1.5 billion, D&C other revenue of $1.9 billion, Commercial licensing revenue of $11.0-11.2 billion and Commercial other revenue of $2.1 billion. Deferred revenue is expected to be $100 million.

ExxonMobil Corp. (XOM - Analyst Report) posted first-quarter 2014 earnings of $2.10 per share, beating the Zacks Consensus Estimate of $1.88. The upside came from steeper natural gas prices. However, earnings per share dropped 1% from $2.12 in the year-ago quarter.

Total revenue in the quarter decreased 1.5% year over year to $106.8 billion, and also came in below the Zacks Consensus Estimate of $111.4 billion. During the quarter, ExxonMobil generated cash flow from operations and asset sales of $16.2 billion. The company returned $5.7 billion to shareholders through dividends/share repurchases. Capital spending decreased nearly 28% year over year to $8.4 billion.

Merck reported first quarter 2014 earnings of 88 cents per share, well above the Zacks Consensus Estimate of 79 cents. Earnings grew 3.5% from the year-ago period.

Revenues for the quarter declined 3.8% to $10,264 million, missing the Zacks Consensus Estimate of $10,448 million. Revenues were hit by the genericization of Singulair and a few other products and negative currency fluctuation (2%).

Including one-time items, first quarter 2014 earnings grew 9.6% to 57 cents per share. The company maintained its guidance for the fiscal year. Merck expects to earn $3.35 - $3.53 per share on revenues of $42.4 billion - $43.2 billion. The Zacks Consensus Estimate of earnings of $3.47 per share and revenues of $42.9 billion is within the guidance range.

Merck expects R&D as well as marketing and administrative spend to decline from 2013 levels. The company spent $7.1 billion and $11.7 billion on R&D and marketing and administrative matters, respectively, in 2013.

Johnson & Johnson (JNJ - Analyst Report) raised its quarterly dividend to 70 cents per share ($2.80 per share annualized), representing an increase of 6.1% over the previous payout of 66 cents per share. The new dividend is payable on Jun10 to shareholders of record as of May 27, 2014. The ex-dividend date is May 22, 2014. The announcement of the encouraging move came at the annual meeting of the company's shareholders.

The decision to hike its quarterly dividend comes close on the heels of the company's impressive performance in the first quarter of 2014. Following the release of better-than-expected first quarter results, the healthcare giant upped its 2014 earnings guidance range by 5 cents to $5.80-$5.90 per share. Following the guidance raise, the Zacks Consensus Estimate has moved up by 4 cents to $5.87 per share.

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 0.72%.

Ticker

Last 5 Day’s Performance

6 month performance

V

+1.37%

+3.48%

IBM

+1.84%

+7.98%

GS

+0.24%

+1.19%

MMM

+3.20%

+11.84%

BA

-0.67%

-3.44%

CVX

+0.43%

+5.87%

UTX

-1.43%

+8.64%

XOM

+1.13%

+12.90%

MCD

+1.13%

+3.83%

CAT

+0.19%

+25.70%

Next Week’s Outlook:

Going forward, earnings will continue to guide investors to a large extent. Economic data will also play a major role. Next week has several key reports lined up, including service sector and trade balance data. Other reports include initial claims, which reached its highest level since end February recently.

But it is the non-farm payrolls report that holds the key to market movement going forward. Any significant decline will add to the positive economic signals already in place, confirming that the setback in GDP numbers is only a temporary feature.

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