The Dow endured a mixed week, suffering record losses before rebounding on the last two days. The blue-chip index declined on Monday after Federal Vice Chairman Stanley Fischer’s comments on Saturday left possibilities of a September rate hike wide open. The Dow posted its third biggest drop of the year on Tuesday in terms of points, slumping 2.8% or 469.68 points.
The blue-chip index gained 1.8% on Wednesday amid strong domestic data and rise in oil prices. The Dow gained on Thursday amid Mario Draghi’s dovish comments, upbeat economic data and fluctuations in oil prices. The Dow has declined 1.6% during the first four trading days.
Last Week’s Performance
Last Friday, the Dow declined 0.1% amid another surge in oil prices and a Fed official’s comment on the timing of a rate hike. Investors’ move to eliminate their short trading positions and increase in tensions in Yemen helped oil prices move north for the second day on Friday. Saudi’s ground offensive on Yemeni forces raised concerns about supply disruption, which eventually boosted oil prices. Dow components Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) advanced 0.3% and 3.6%, respectively.
Meanwhile, investors remained focused on Federal Reserve Vice Chairman Stanley Fischer’s comments on the timing of a rate hike. He indicated that the central bank may raise interest rates this year, but didn’t mention any specific time.
Investors’ reaction to the less-than-expected rise in consumer spending remained mostly muted. Personal consumption expenditure increased 0.3% in July, less than the consensus estimate of a 0.4% increase.
For the week, the Dow gained 1.1%. Additionally, the blue-chip index recorded its biggest intra-week reversal since the last week of Oct 1987. Upbeat GDP data, durable-goods report and rebound in oil prices helped benchmarks notch up gains for the week.
Additionally, benchmarks staged a comeback on Wednesday after the New York Federal Reserve President William Dudley said that a September rate hike is “less compelling”.
Meanwhile, benchmarks had suffered a rout during the first two trading days of the week as investors were concerned about China’s economic slowdown. The Dow declined to an 18-month closing low. Later, China’s central bank decided to cut interest rates and reserve requirement ratio to shore up growth.
The Dow This Week
The blue-chip index declined 0.7% on Monday after Federal Vice Chairman Stanley Fischer’s comments on Saturday left possibilities of September rate hike wide open. Federal Vice Chairman Stanley Fischer said during the weekend that inflation in the U.S. is likely to rebound as pressure from dollar subsides. This in turn will allow the Fed to hike rates gradually. This follows Fischer’s comments made last Friday, when he said that a September rate hike was “pretty strong” before China devalued its currency.
Oil prices moved north on Monday after data projected decline in U.S. oil production levels. Further, OPEC’s intention to talk to other oil producers regarding the recent slump in oil prices boosted global oil prices. Dow components Exxon Mobil and Chevron advanced 0.2% and 0.7%, respectively.
For the month, the Dow plunged 6.6%. The blue-chip index notched up its biggest monthly decline in more than five years. Benchmarks slumped for the month on concerns that a weak Chinese economy would result in a global slowdown.
Yuan devaluation also hurt stocks significantly. Uncertainty about the timing of a Fed rate hike was another major cause for the downfall. Meanwhile, continuous slump in oil prices dented investor sentiment. However, oil prices spiked during the last three trading days of the month.
A steep decline in TV-subscribers weighed on the earnings results of major media companies. Separately, disappointing quarterly performance of The Walt Disney Company (DIS - Free Report) and Wal-Mart Stores Inc. (WMT - Free Report) weighed on the blue-chip index. Among the positives, GDP data came in better-than-expected. Second quarter GDP gained momentum, boosted by improved consumer spending.
Benchmarks suffered their third biggest drop of the year on Tuesday as dismal China manufacturing data intensified global economic concerns. China’s official manufacturing PMI fell to its lowest level in three years in August, dropping to 49.7 in August from July’s reading of 50. This follows preliminary Caixin China Manufacturing Purchasing Managers’ Index figure of 47.1 in August, which represents a 77-month low.
Meanwhile, Christine Lagarde’s comment that global economic growth could slow down added to investors’ woes. The Dow posted its third biggest drop of the year in terms of points, slumping 2.8% or 469.68 points. The blue-chip index also posted its worst first trading day for a month since Mar 2009.
The Dow gained 1.8% on Wednesday amid strong domestic data and rise in oil prices. The Fed’s Beige Book showed economic activity continued to expand in the U.S, with manufacturing activity turning out to be “mostly positive” in New York and Kansas City. Additionally, retail sales “continued to expand” in most of the 12 districts, while reports on the real estate sector were largely positive.
A total of 190,000 private jobs were added in August, according to the Automatic Data Processing, Inc. (ADP - Free Report) . This was higher than July’s downward revised job additions of 177,000. The numbers were just in line with market expectations, as economists were eyeing an addition of 190,000 – 227,000 jobs. New orders for manufactured goods increased 0.4% in July.
The blue-chip index gained 0.1% on Thursday amid Mario Draghi’s dovish comments, upbeat economic data and fluctuations in oil prices. Speaking at a news conference, European Central Bank (ECB) President Mario Draghi said the ECB is prepared to “fully implement” its asset buyback program until Sep 2016 “or beyond”, if required.
Meanwhile, the trade deficit declined in July to $41.9 billion from $45.2 billion in June, more than the consensus estimate of deficit of $43.1 billion. Additionally, the NMI edged 1.3 percentage point lower than July’s reading to 59% in August. However, the reading was better than the consensus estimate of a decrease to 58.1%. Initial claims also increased, but continue to remain below the 300,000 mark for the past six months.
An early rally in oil prices lost steam as the U.S. dollar continued to strengthen. However, oil prices posted modest gains at the end of the day, banking on weekly decline in oil production levels. Dow components Exxon Mobil and Chevron increased 0.8% and 0.3%, respectively.
Components Moving the Index
Boeing Co. (BA - Free Report) has won a modification contract worth $1.49 billion, for additional production of the 14 P-8A Poseidon maritime surveillance aircraft.
Per the contract, Boeing will manufacture and deliver 9 U.S. Navy full-rate production (“FRP”) Lot II P-8A aircraft and 4 Royal Australian Air Force FRP Lot II P-8A aircraft. The contract also includes the purchase of long-lead parts required to manufacture 20 P-8A FRP Lot III aircraft. Out of this, 16 are meant for the Navy and 4 for the Australian government.
The Department of Defense (DoD) added that Boeing will provide FRP Lot II services and components comprising obsolescence monitoring, program management reviews, two airborne sensor A-kits and life-of-type buy items. The deliveries are due by Dec 2018.
Cisco Systems (CSCO - Free Report) recently closed the acquisition of OpenDNS — a cloud-based security company — for $635 million. OpenDNS will now be incorporated into Cisco's security business group under the leadership of senior vice president and general manager, David Goeckeler.
San Francisco-based OpenDNS offers cloud-based security solutions to both home and business users. The company’s services prevent computer attacks from particular Internet domains and encrypt web traffic to limit eavesdropping and other such threats. Its services are easy to deploy and integrate and cater to more than 65 million customers across 160 countries. The buyout will add enhanced visibility and threat awareness of OpenDNS’ cloud platform to Cisco’s cloud security offerings.
General Electric Company GE announced the completion of the sale of its U.S. fleet services business to Element Financial Corporation, in a deal valued at about $5 billion. The transaction amounts to ENI (Ending Net Investment) of roughly $4.4 billion.
Separately, GE announced that the divestment of GE’s Mexican, Australian and New Zealand fleet businesses to Element Financial Corporation. It is expected to conclude at the end of the third quarter, while that of its European fleet businesses, which is to be sold to Arval (a fully-owned subsidiary of BNP Paribas), is expected to close in the fourth quarter.
The U.S. fleet services deal has freed about $0.6 billion of capital. The company is on track to reduce GE Capital’s ENI by $100 billion by 2015 end, and expects to be mostly done with its exit strategy by the end of 2016.
Microsoft (MSFT - Free Report) and Amazon (AMZN - Free Report) have teamed up in the cloud computing arena. The Federal Aviation Administration (FAA) has awarded a $108 million, 10-year contract to IT consulting firm Computer Sciences Corporation and its team, which includes Amazon Web Services, Microsoft Azure and other strategic business partners. The deal could add up to $1 billion over the next decade.
Per the deal, the FAA wants them to deliver cost-efficient cloud services, data center consolidation and cloud migration capabilities. So the Computer Sciences team has to consolidate FAA data centers and migrate the agency’s data to the cloud-computing centers hosted by the two tech giants.
United Technologies Corp (UTX - Free Report) , a division of UTC Aerospace Systems has been selected by easyJet – a European airline to supply the wheels, carbon brakes and MRO support, for the 68 new Airbus A320ceo aircraft.
The new wheels and brakes are designed as an enhancement to existing products and will be compatible across various A320ceo platforms. The new power system will provide easyJet with innovative technologies, high performance and additional flexibility to support the aircrafts. This contract should further foster extended brake life for the new A320ceo fleet, thereby generating significant cost savings.
Intel Corporation (INTC - Free Report) unveiled the sixth generation of Intel Core chips- i3, i5 and i7. The chips are capable of powering a range of new devices from tablet computers to high-end gaming PCs.
Along with this, it also unveiled updated Core M processors -the Core M3, M5 and M7 chips – meant particularly for tablets and 2-in-1 hybrid devices that double up as tablets and notebooks with detachable keyboards.
The technology is touted as its best processor architecture ever and marks a turning point in people’s relationship with computers. Also, Intel hopes that these chips will help it revive the sagging PC market.
DuPont (DD - Free Report) announced that the U.S. Environmental Protection Agency (EPA) has granted registration approval for its new disease control active ingredient, oxathiapiprolin. The ingredient will be marketed by DuPont Crop Protection under the Zorvec moniker.
DuPont said that Zorvec will deliver control and consistency that will enable the farmers to boost yield, realize better quality and improved productivity for a more successful crop. With this approval DuPont will take this innovative new technology to growers around the globe. Upon receiving other pending approvals, DuPont plans to launch Zorvec disease control in a number of countries including Mexico, China, and Australia later in 2015.
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 0.5%.
Last 5 Day’s Performance
Next Week’s Outlook
Rate hike fears have returned to haunt the markets. These concerns have been triggered by widely varying comments from Fed officials which have kept investors guessing. And at the root of all this is weak economic data from China, exacerbated by a stock market slump. These factors have led to record losses for benchmarks for the week.
At this point, the market’s positive triggers are strong domestic economic data and rising oil prices. Of the two, domestic economic reports are maintaining a consistent trend, amidst all the uncertainty in other areas. Next week is relatively short on crucial economic reports.
But still, data on inflation, wholesale inventories, consumer comfort and crude inventories are scheduled for release. If the majority of these reports are on the positive side, stocks could experience some stability in the days ahead.
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