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Dow 30 Stock Roundup: JPM Q2 Impresses, Orders for Boeing & United Technologies

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The Dow notched up heavy gains during an eventful week, boosted by multiple factors. Strong job numbers posted on July 8 were the initial catalyst for the week’s gains. The earnings season started on a strong note while the Bank of England promised to introduce monetary stimulus next month, boosting investor sentiment. Strong economic data helped the blue-chip index notch up four successive sessions of gains this week.   

Last Week’s Performance

The index surged 1.4% last Friday following a better-than-expected jobs report. The U.S. economy created a total of 287,000 jobs in June. The economy added higher-than-expected new jobs for the first time in the last four months. The unemployment rate was 4.9% in June, which was higher than May’s rate of 4.7%. This was mainly because more than 400,000 Americans re-joined the workforce and the labor force participation rate rose to 62.7%.

Strong rebound in jobs addition had a broad-based positive impact on the markets and helped the materials stock DuPont (DD - Free Report) to gain 2.9%. Industrials also gained and Dow components 3M (MMM - Free Report) , General Electric (GE - Free Report) , Boeing (BA - Free Report) and United Technologies (UTX - Free Report) rose 1.3%, 1.2%, 2.3% and 1.7%, respectively.

Further, June’s encouraging job data also raised speculations about heightened rate hike chances this year, which in turn pushed financial stocks northward. Dow components JPMorgan Chase (JPM - Free Report) and Goldman Sachs (GS - Free Report) rose 2.1% and 2.3%, respectively. Upbeat job report also boosted oil prices earlier in the day. Exxon Mobil (XOM - Free Report) and Chevron (CVX - Free Report) advanced 0.6% and 1.7%, respectively.

The Dow gained 1.1% over last week. Benchmarks closed in positive territory for the week after the FOMC minutes from June meeting showed that most of the Fed policymakers were in favor of keeping rates unchanged. Economic news during the week was mostly favorable. The ISM Services Index posted its best rise in the last seven months, private job data was encouraging, initial claims reached near a three-month low and crude inventories registered a better-than-expected decline.

The Dow This Week

The index moved 0.4% higher on Monday following continuing positive impact of Friday’s encouraging job data on investor sentiment. Moreover, Japan’s Prime Minister Shinzo Abe’s victory in the upper house election on Sunday raised chances of additional stimulus measures. This in turn boosted the domestic markets.

Following the victory, speculation heightened that Abe will now come up with more aggressive economic stimulus measures to boost the nation’s economy. JPMorgan and Goldman Sachs rose 0.7% and 1.2%, respectively, reflecting broader gains in financial stocks. Industrial and tech stocks also gained.

The index increased 0.7% on Tuesday after oil prices rebounded and Alcoa (AA - Free Report) posted better-than-expected earnings. Reduced “Brexit” worries and Abe’s initiative to launch more stimulus measures had a broad-based positive impact on oil prices. Brexit fears lessened following news that Home Secretary, Theresa May, will succeed British Prime Minister David Cameron

Moreover, OPEC projected that new oil demand will be 1.2 million barrels per day (bpd) in 2017, nearly 300,000 bpd more than the average of the last 10 years. Further, non-OPEC crude production is expected to fall by 880,000 bpd in 2016, to 56.03 million barrels, as compared to last year. This in turn further pushed oil prices northward.

The index gained 0.1% on Wednesday following speculations that the Bank of England might cut rates to support Britain’s economy. It was being widely expected that in order to boost Britain’s economic condition following its exit from the EU, Bank of England might reduce interest rates for the first time in seven years. Britain’s central bank was expected to reduce the key interest rate from 0.5% to 0.25%, which in turn had a broad-based positive impact on global and domestic markets.

Safe-haven sectors like utilities and telecom emerged as the biggest gainers. In economic news, economic activity expanded at a modest pace in most districts of the U.S., per the Fed’s Beige Book. All the 12 districts indicated moderate growth in economic activity since the previous Beige Book report.

The index moved up 0.7% on Thursday after JPMorgan reported better-than-expected earnings results and Bank of England hinted at easing monetary policy in August. Gains in the Dow component, JPMorgan, had a positive impact on financial stocks.

Moreover, Bank of England surprised the markets by keeping their rate unchanged at 0.5%. However, Britain’s central banks hinted at the introduction of fresh economic stimulus measures next month. Following a surge in pound, the dollar weakened, which in turn had a positive impact on oil prices.

The index notched a record closing high for the fourth-straight session on Friday banking on upbeat U.S. retail sales data, gaining 0.05%. Sales at retail stores and restaurants advanced 0.6% in June from the prior month to a seasonally adjusted $456.98 billion. Sales were mostly led by a jump of 3.9% in building and supply stores, its largest one-month increase since Apr 2010.

Additionally, industrial output expanded at the fastest monthly rate in 11 months. Industrial output that comprises almost everything including manufacturing, mining, and electric and gas utilities increased 0.6% following a 0.3% decline in May. The Dow gained 2% over last week.

Components Moving the Index

JPMorgan’s second-quarter 2016 earnings of $1.55 per share handily outpaced the Zacks Consensus Estimate of $1.43. Also, the figure reflects a 1% rise from the year-ago period. Notably, the results included a legal benefit of $430 million.

Managed net revenue of $25.2 billion in the quarter was up 3% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $24.06 billion. A 35% surge in fixed income markets revenue and a 5% rise in mortgage banking income led to the improvement in the top line.

However, JPMorgan’s credit quality deteriorated during the quarter. As of Jun 30, 2016, nonperforming assets were $7.8 billion, up 2% from the year-ago period. Net charge-offs increased 17% year over year to $1.2 billion. Further, provision for credit losses increased 50% year over year to $1.4 billion (read: JPMorgan (JPM - Free Report) Beats Q2 Earnings as Trading Income Rises).

Boeing has received an order from Yunnan-based carrier Ruili Airlines at the 2016 Farnborough International Airshow for its 787-9 Dreamliners. The order comprises 6 787-9 Dreamliners, valued at $1.59 billion at current list price. The purchase is however subject to the Chinese government’s approval.

Ruili Airlines seeks to expand its fleet to 70 airplanes through 2025 from its current fleet of nine 737 airplanes. This airline, which was established in Feb 2014, operates on 16 domestic routes with 46 daily departures (read: Boeing, Ruili Airlines Sign Deal for 787-9 Dreamliners).

United Technologies’ operating segment Pratt & Whitney recently secured a contract worth $1.5 billion from the U.S. Department of Defense to manufacture F135 propulsion systems to power all three variants of the F-35 Lightning II aircraft. The deal encompasses 99 engines in aggregate, along with program management, engineering support, spare modules and related spare parts.

Under the current contract, Pratt & Whitney has reduced unit prices for 86 conventional takeoff and landing and carrier variant propulsion systems by 2.6%, while lowering the same for 13 short takeoff and vertical landing propulsion systems by 4.2% (read: UTX's Pratt & Whitney Wins $1.5B Contract from U.S. DOD).

General Electric recently announced that it has formed a strategic alliance with Schindler to utilize the full potential of the Industrial Internet for digital innovations in elevators, escalators and smart buildings.

Founded in Switzerland in 1874, the Schindler Group is a manufacturer of escalators, elevators and moving walkways worldwide. Schindler will leverage General Electrics’ Predix platform to enhance its capabilities to monitor and analyze data generated from its connected elevators, escalators and PORT Technology.

General Electrics’ Predix-based digital platform will help Schindler to identify, analyze and resolve service issues way before they happen. This will in turn help reduce and eliminate downtime and improve user experience (read: GE Unit and Schindler Collaborate for Digital Solutions).

Verizon Communications Inc. (VZ - Free Report) recently achieved a milestone as it became the first company in the world to issue an initial radio specification for the upcoming 5G wireless network. The industry-wide standardization specification by the 3GPP is likely to be ready in Jun 2018 (read: Verizon Provides the First Ever 5G Radio Specification).

Additionally, Verizon has increased its monthly data plan by up to $10/month, depending upon the size of the plan. The increase in rates is, however, accompanied by higher data caps for each and every plan. Interestingly, the rate hike will actually lower the cost per GB for consumers (read: Verizon (VZ - Free Report) Hikes Monthly Data Plan, Increases Data Limit).

Pfizer Inc. (PFE - Free Report) announced positive results from the phase III study, S-TRAC (Sunitinib Trial in Adjuvant Renal Cancer), on Sutent.

The randomized, double-blind trial evaluated Sutent in comparison to placebo in the adjuvant setting in patients who are at high risk of renal cell carcinoma (RCC). Results showed that the trial met the primary endpoint of improving disease-free survival as determined by a blinded independent central review in RCC patients with a high risk of recurrence after surgery. Adjuvant therapy is expected to lower the risk of recurrence in patients suffering from early-stage cancer.

Pfizer expects to report full efficacy and safety data from the trial at the ESMO 2016 Congress in Oct 2016 (read: Pfizer Reports Positive Data on Kidney Cancer Drug Sutent).

Additionally, Pfizer announced that the FDA has approved a label expansion of the vaccine Prevnar 13 (Pneumococcal 13-valent Conjugate Vaccine [Diphtheria CRM197 Protein]).

The vaccine can now be used for adults aged 18 to 49 years. The vaccine was previously approved for active immunization in the prevention of pneumonia and invasive disease caused by 13 Streptococcus pneumoniae (S. pneumoniae) serotypes – 1, 3, 4, 5, 6A, 6B, 7F, 9V, 14, 18C, 19A, 19F and 23F – in adults aged 50 years or older (read: Pfizer (PFE - Free Report) Gets FDA Nod for Label Expansion of Prevnar 13).

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 1.6%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

+1.9%

+30.8%

GS

+5.7%

+3.9%

IBM

+1.8%

+22.9%

HD

-0.5%

+13%

BA

+1.3%

+5.4%

UNH

+1.2%

+29.3%

MCD

+1.1%

+7.3%

TRV

+0.3%

+12.9%

JNJ

+0.2%

+26.8%

AAPL

+1.6%

+1.7%

Next Week’s Outlook

Markets have received a tremendous boost last week due to a variety of factors. Earnings started on a strong note and any weakness has been offset by both international and domestic positives. On the international front, promises of stimulus measures from Japan and England have encouraged investors. Meanwhile, domestic data indicates the economy’s performance has improved.

Data on housing and some other economic indicators are scheduled for release this week. However, as earnings releases pile up, it is likely that the nature of these reports will determine the direction of stocks to a large extent in the days ahead.

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