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Dow 30 Stock Roundup: Walmart Misses on Earnings, GS Bank to Buy GE Capital Bank's Online Platform

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The Dow suffered a particularly dismal week due to multiple concerns. The Dow increased 0.4% on Monday boosted by strong housing data. The blue-chip index closed in the red on Tuesday following mixed earnings results and renewed concerns about China’s economy. The Dow declined on Wednesday following a slump in oil prices, global growth worries and Fed Minutes which revealed little about the timing of a rate hike.

The blue-chip index slumped to a multi-month low on Thursday following concerns that a weak Chinese economy would result in a global slowdown. The Dow has lost 2.8% during the first four trading days.

Last Week’s Performance

Last Friday, the Dow gained 0.4%, boosted by positive domestic economic data and encouraging news from Greece. Industrial production increased 0.6% in July, higher than the consensus estimate of 0.1%. This was the second successive increase following five month-over-month declines and the largest increase in eight months.

Additionally, PPI increased 0.2% in July, higher than the consensus estimate of 0.1%. This is the third successive monthly increase, following a 0.4% increase in June.

Meanwhile, Eurozone’s finance ministers approved a €86 billion ($96 billion) bailout package for Greece. This brings to close long and turbulent negotiations between the country and its creditors. Early on Friday, Greece’s parliament passed the budgetary cuts needed to qualify for the bailout.

For the week, the blue-chip index rose 0.6%. Gains in energy and commodity related stocks helped benchmarks settle in the green on Monday. Stocks closed Tuesday’s session in the red after a sudden devaluation of the yuan.  Benchmarks ended Wednesday’s volatile session nearly flat after recovering from steep declines suffered earlier in the day. Stocks closed Thursday’s session mostly in the red, following two days of volatile trading after the yuan’s devaluation and continued to gain on Friday.

The Dow This Week

The Dow increased 0.4% on Monday boosted by strong housing data. Investors ignored a weak manufacturing report as the Dow posted gains for the third consecutive session, overcoming an early three-digit loss. Meanwhile, media and biotech stocks found favor with investors.

Markets moved upward primarily due to strong housing data. According to the National Association of Home Builders, the NAHB/Wells Fargo Housing Market index increased from 60 to 61 in August. Such a reading was last recorded in Nov 2005 and the latest reading was in line with most estimates.

This report helped negate dismal New York manufacturing data. The Empire State manufacturing index slumped from 3.9 in July to a negative reading of 14.9. This indicates a contraction and is the lowest reading recorded since Apr 2009.

Benchmarks closed in the red on Tuesday following mixed earnings results and renewed concerns about the state of China’s economy. Shares of Wal-Mart Stores Inc. (WMT - Free Report) lost 3.4% to $69.49 following dismal fiscal second quarter 2016 earnings results. This was the lowest level experienced in around two and a half years. Consequently, the blue-chip index suffered a 16.2 point loss, declining 0.2%. In contrast, positive earnings numbers helped shares of The Home Depot Inc. (HD - Free Report) gain 2.6%.

Meanwhile, concerns surrounding China’s economy weighed on the markets, particularly commodity stocks. The Shanghai Composite Index slumped 6.1%, closing only 240 points higher than the low it touched on Jul 8. Stocks in China declined despite a record injection of funds in a day in more than one and a half years. The decline triggered fears of a further devaluation in yuan, leading to losses for basic materials.

Mixed results and concerns about China negated the positive impact of bullish housing starts data. Housing starts increased 0.2% in July to 1,206,000 units, the largest figure witnessed since Oct 2007. Additionally, the estimate for June was revised sharply upward to 1,204,000 from the original figure of 1,174,000. However, building permits declined significantly, by 16.3% to 1,119,000 in July.

The Dow lost 0.9% on Wednesday following a slump in oil prices, global growth worries and Fed Minutes which revealed little about the timing of a rate hike. The Dow took the heaviest losses, following a decline in key components from the energy sector. Price of WTI crude oil and Brent crude declined to their lowest levels experienced since Mar 2009 and Jan 13, respectively.

This led to a fall in energy stocks, despite the dollar weakening after the Fed expressed a dovish view in the FOMC minutes. Shares of Chevron Corp. (CVX - Free Report) lost 3%, slumping to the lowest intraday level experienced in 52 weeks at one point. This decline, along with a 2.1% loss experienced by Exxon Mobil Corp. (XOM - Free Report) , dragged down the Dow.

The session was also marked by a significant level of volatility after Fed Minutes were published earlier than expected. Fed minutes revealed that the majority of policymakers “judged  that  the  conditions for  policy  firming  had  not  yet  been  achieved.”

The Fed’s worries about China were reflected in the volatility experienced by the Shanghai Composite Index. China’s benchmark gained 1.2% after losing more than 4% at one point. The impact of such stock movements spilled over onto the Nikkei, which closed 1.6% lower and the Hang Seng which declined 1.3%. Most of the volatility can be attributed to the prospects of an economic slowdown in China.

Benchmarks slumped to multi-month lows on Thursday on concerns that a weak Chinese economy would result in a global slowdown. Uncertainty about the timing of a Fed rate hike was another major cause of indexes’ downfall. The continuing slump in all prices also dampened investor sentiment. All benchmarks moved into the red for the year as sectors such as technology, consumer-discretionary and healthcare, which have powered growth up to now, experienced a sharp decline.

The Dow slumped 2.1%, suffering its highest loss in percentage terms since Feb 3, 2014 and hit its lowest level since October last year, falling below the key 17,000 level. Shares of The Walt Disney Company (DIS - Free Report) lost 6% while Merck & Co. Inc. (MRK - Free Report) declined 4.5%, pulling down the blue-chip index.

Fears about China’s economy have been heightened by the heavy losses suffered by its benchmark index this week. The Shanghai Composite Index declined 3.4% on Thursday and had lost 8% over the week at that point. Also, the country’s commerce ministry revealed on Wednesday that exports could undergo a further decline this year. These negative economic reports have led to investors losing confidence in the economy, leading to a slump in equity markets.

Additionally, the impact of the minutes of the Federal Open Market Committee (FOMC) meeting flowed into Thursday. Wednesday’s massive slump in oil due to an increase in U.S. crude inventories continued to have an impact.

Components Moving the Index

Home Depot posted second-quarter adjusted earnings of $1.71 per share, which increased 12.5% from the year-ago quarter and beat the Zacks Consensus Estimate by a penny. Including one-time items, quarterly earnings surged 13.8% year over year to $1.73 per share.

Net sales advanced 4.3% to $24,829 million from $23,811 million in the year-ago quarter and were also ahead of the Zacks Consensus Estimate of $24,660 million. The company’s overall comparable-store sales (comps) increased 4.2% while comps in the U.S. grew 5.7%.

The company now projects sales growth of 5.2%–6% compared with 4.2%–4.8% expected earlier. Consequently, Home Depot now envisions diluted earnings per share to grow in the range of 13%–14%, with earnings estimated in the band of $5.31–$5.36 per share. Earlier, the company had projected earnings per share growth of 11%–12% and earnings of $5.24–$5.27 per share.

Wal-Mart’s fiscal second quarter 2016 earnings of $1.08 per share missed the Zacks Consensus Estimate of $1.12 by 3.6% and declined 10.7% from the year-ago earnings from continuing operations of $1.21 per share. Earnings were however within management’s guidance range of $1.06 to $1.18 per share.

Total revenue of the retailer beat the Zacks Consensus Estimate of $119.97 billion by 0.2% and increased 0.1% year over year to $120.23 billion (including membership and other income). Currency depleted sales by approximately $4.2 billion.

For the third quarter of fiscal 2016, earnings are expected in the range of 93 cents to $1.05 per share, compared with the prior-year quarter’s earnings of $1.15 per share. Wal-Mart expects U.S. comp sales growth in the range of 1% to 2% for the 13-week period ending Oct 30 compared with 0.5% comps growth last year.

The Goldman Sachs Group, Inc.’s (GS - Free Report) banking subsidiary Goldman Sachs Bank USA (‘GS Bank’) is set to acquire the online deposit platform of GE Capital Bank, an arm of Connecticut based-General Electric Company (GE - Free Report) .  While the financial terms remain undisclosed, GS bank will assume $16 billion in deposits comprising online deposit accounts and brokered certificates of deposit.

The deal includes management, employees, software and technology associated with the platform. As the platform is online, the deal excludes acquisition of any physical assets.

General Electric Company recently announced an investment of over $100 million for the development of a new line of top load washers and extension of manufacturing facilities at its laundry plant in Louisville.

The investment is the largest of its kind by General Electric in the segment in two decades. The strategic move by General Electric is aimed to provide consumers improved energy efficiency and technology. This new investment is also a sign of confidence in the continued industry dominance of top-load washers, despite the recent growth of frontload washer models.

The Coca-Cola Company (KO - Free Report) recently acquired a minority stake in home-delivery juice company, Suja Juice. San Diego-based Suja Juice, the second most promising company according to Forbes, is known for its breakthrough High Pressure Processing (HPP) technology that preserves maximum nutrition and taste.

Per the agreement, Suja will continue to serve its existing customers and Coca Cola will venture into new channels for expanding the distribution network. The combined force of Suja with Coca-Cola North America’s Venturing and Emerging Brands (VEB) are expected to enhance the brand equity of growing brands like Honest Tea and ZICO.

Visa Inc. (V - Free Report) announced that Samsung has partnered with it to use the Visa Digital Enablement Program (“VDEP”). The VDEP will enable Visa consumer credit and debit cardholders to use Samsung Pay, when it is launched. In order to secure mobile payments, Samsung will use the Visa Token Service (“VTS”).

Merck & Co. Inc. announced that the FDA has accepted its supplemental Biologics License Application (sBLA) for Keytruda, an anti-PD-1 therapy, for review. The company is seeking approval of the currently approved dose of the drug (2mg every three weeks) for the first-line treatment of patients with unresectable or metastatic melanoma. The FDA granted Priority Review with an action date of Dec 19, 2015.

JPMorgan Chase & Co. (JPM - Free Report) is undergoing advanced discussions with the U.S Securities and Exchange Commission (“SEC”) to resolve an investigation over the sale and use of proprietary products for its private-banking clients, according to The Wall Street Journal. The bank plans to settle the matter for $150 million in the coming weeks.

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 2.2%.

Ticker

Last 5 Day’s Performance

6-Month Performance

GS

-3.2%

+2.7%

MMM

-3.7%

-14.7%

IBM

-1.6%

-6.7%

BA

-3.8%

-13.5%

AAPL

2.5%

-13%

UNH

-1.6%

+6.4%

UTX

-2.5%

-22.8%

HD

+3.2%

+7.4%

TRV

+0.2%

-2%

CVX

-5.4%

-27%

Next Week’s Outlook

Benchmarks suffered severe losses this week, plagued by multiple concerns.  Market watchers opined that the dovish tone of the minutes implied that a rate hike in September was unlikely. However, the uncertainty among investors about the timing of a possible rate hike has kept them on the edge. Meanwhile, weakness in China’s markets and concerns about the economy continue to plague stocks.

On the other hand, the bulk of economic reports remain on the bright side. Housing and employment in particular continue to show promise. Such data has also boosted benchmarks on the day of their release. Several important reports are scheduled for release this week. This includes data on home sales, durable orders, consumer confidence, personal spending.

However, GDP numbers possibly hold the key to market movement, following their release next Thursday. Overall, any positive indications on the economic front could help stocks return to their winning ways in the days ahead.

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