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The Dow experienced turbulence this week, gaining on the first two days of the week, before dropping significantly on the last two. Gains in Internet, bio-tech and industrial stocks helped the Dow move upwards on Monday. The blue chip index increased once again on Tuesday, aided by bullish economic data.

Losses experienced by small-cap and Internet stocks dragged the Dow downwards on Wednesday. The sell-off in small caps combined with disappointing earnings from Wal-Mart Stores Inc. (WMT - Analyst Report) to push the blue chip index down to its biggest drop in more than a month on Thursday. During the first four trading days, the Dow has lost 1.49%.

Last Week’s Performance

The Dow gained 0.2% to close on a record high on Friday and fellow benchmarks also ended in positive territory boosted by gains in momentum stocks. Consumer discretionary and healthcare stocks led a late-session rally. Bio-tech stocks also boosted the broader markets.

The blue-chip index gained 0.4% for the week unlike other benchmarks which ended a choppy week mostly lower, dragged down by intense selling pressure in Internet stocks. Selloffs in utilities and energy sectors had a negative impact on the indexes. Moreover, a decline in AIG’s quarterly income adversely affected the benchmarks

The Dow This Week

The Dow gained 0.7% to close at a record high once again on Monday, primarily boosted by gains in Internet and bio-tech stocks. Merger and acquisition activity in the food industry too boosted investor sentiment. The day’s economic reports were limited to the Treasury budget, which reported a surplus of $107.0 billion. Gains in industrial stocks also boosted benchmarks.

An upward revision of March’s retail sales data and encouraging small-business sentiment helped the blue chip index gain 0.1% on Tuesday. Investors were enthused by the upward revision of March’s retail sales data from 1.1% to 1.5%, which marked the biggest gain in four years. A new deal between Keurig Green Mountain, Inc. (GMCR - Analyst Report) and The Coca-Cola Company (KO - Analyst Report) was also welcomed by the investors.

Benchmarks retreated from record highs on Wednesday dragged down by declines in small-cap and Internet stocks. Selloffs in the consumer discretionary sector also had a negative impact on benchmarks. Meanwhile, investors remained focused on recent developments in Ukraine where pro-Russian rebels and Ukrainian forces are in constant confrontation. The Dow lost 0.6% by the close.

Declines in small-cap stocks and Wal-Mart’s disappointing numbers dragged down benchmarks to their worst losses in five weeks on Thursday. The Russell 2000 Index of small-caps registered its third successive decline after the index slipped 0.7%.

The Russell 2000 remained below its 200-day moving average and declined 10% from its record high of 1,208.65 achieved on March 4. Investors were also concerned about Euro zone’s less-than-expected first quarter GDP growth. The blue chip index registered its biggest drop since April 10, dropping 1.0%.

Components Which Moved the Index

Cisco Systems (CSCO - Analyst Report) reported third-quarter fiscal 2014 earnings of 46 cents, which were above the Zacks Consensus Estimate of 43 cents. The adjusted earnings per share exclude one-time items but include stock-based compensation expenses. Revenues decreased 7.7% year over year but increased 4.8% sequentially to $8.8 billion. However, revenues were below the Zacks Consensus Estimate of $11.3 billion.

Shares surged 7.2% in after-hours trading on Wednesday, driven by better-than-expected earnings, improving markets for the company’s products in the United States and Europe, and strong growth prospects in areas like cloud computing, mobile and data center.

Wal-Mart Stores Inc. has yet again disappointed its investors by posting weaker-than-expected earnings and revenues. Walmart’s fiscal first quarter 2015 adjusted earnings of $1.10 per share lagged the Zacks Consensus Estimate of $1.15 by 4.3% and declined 3.5% from the year-ago earnings of $1.14 per share. Earnings were at the lower end of management’s guidance range of $1.10 and $1.20 per share.

Weak sales due to a volatile macro-economic environment and high direct costs related to harsh weather conditions adversely impacted earnings by 3 cents in the reported quarter. Higher-than-anticipated effective tax rate also resulted in the year-over-year decline in earnings. In fact, the company delivered weak results in all the four quarters of fiscal 2014 due to a weak economic environment.

The Coca Cola Company is planning to increase its stake in specialty coffee retailer Keurig Green Mountain Coffee Inc. to 16%. This is an extension of the deal closed on Feb 27, 2014, under which Coca Cola took over 10% stake of the coffee maker for $1.25 billion at $74.98 per share. Shares of Coke gained 0.7% on Tuesday, following the announcement.

American Express Company (AXP - Analyst Report) increased its quarterly cash dividend by 13%. The raised dividend now stands at 26 cents per share against 23 cents paid on Feb 10, 2014. The revised dividend will be paid on Aug 8, to shareholders of record as of Jul 11.

The company made another significant announcement. In consistence with its commitment to enhance the U.S. small merchant experience, American Express has expanded its merchant acquiring program, OptBlue. The expansion has added four participants, namely First Data, EVO, Merchant e-Solutions and First American Payments Systems, which brings the total number of OptBlue participants to 10.

Intel Corporation (INTC - Analyst Report) recently acquired Ginger Software’s assets and talent related to its natural language processing (“NLP”) technology and applications field, which includes the personal assistant division. The personal assistant platform enables third party companies to build custom-made personal assistants. Reportedly, Intel paid a sum of $30 million for the acqui-hire deal.

General Electric Company (GE - Analyst Report) recently signed an agreement to acquire Wurldtech - a Vancouver-based private company for an undisclosed amount. Through this acquisition, GE intends to advance cyber security solutions for critical infrastructure and Operations Technology (OT) globally.  Post acquisition, Wurldtech will operate as a wholly owned subsidiary of General Electric.

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 declined 0.82%.

Ticker

Last 5 Day’s Performance

6 month performance

V

-1.59%

+2.70%

IBM

-1.90%

+1.79%

GS

-0.36%

-4.72%

MMM

-0.25%

+8.57%

BA

+0.08%

-3.58%

CVX

-0.98%

+3.12%

UTX

-1.10%

+6.55%

XOM

-1.15%

+5.78%

MCD

-0.42%

+5.76%

CAT

-0.07%

+25.38%

Next Week’s Outlook:

The Dow has had a mixed week, touching both record highs and lows. Gains made by Internet and bio-tech stocks and encouraging economic data have helped indices gain, while small caps have proved to be a major headwind. The fluctuating behaviour of Internet stocks and the fortunes of the Russell 2000 could be the major indicators of markets’ behaviour going forward.

At the same time, bullish housing data released today could turn the tide for stocks. Next week will also has important housing sector reports lined up. These reports, combined with leading indicators data could also have a significant impact on market direction.

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