The Dow chalked up gains this week, boosted by encouraging consumer related data and OPEC’s landmark production control agreement. Consumer confidence touched a nine-year high, leading to significant gains for consumer discretionary stocks on Tuesday. Meanwhile, the world’s largest oil exporting countries agreed to curb output for the first time in eight years, leading to gains for energy stocks.
Last Week’s Performance
The Dow lost 0.7% last Friday after a slump in oil prices dragged stocks lower. Crude dropped after Saudi Arabia said that it doesn’t expect the Organization of the Petroleum Exporting Countries (OPEC) to reach an agreement on output limits, when it meets on Wednesday in Algeria. The group’s general secretary had already said that such a meeting is informal and is not for decision making.
Apple Inc. (AAPL - Analyst Report) also contributed to the negative sentiment. Shares of the iPhone maker fell 1.7% on Friday after research company GfK raised concerns about sales of the latest iPhone 7 and 7 Plus.
However, the Dow increased 0.8% over last week. Benchmarks notched up weekly gains as investors cheered the Federal Reserve’s latest policy announcement. The Fed opted to keep short-term interest rates unchanged “for the time being” as the central bank sought further evidence of economic strength.
Fed Chairwoman Janet Yellen said that she is in no hurry to raise rates as inflation continued to run below the Fed’s target level of 2%. She also noted that business investment remains soft and wants to see further improvement in the job market.
The Dow This Week
The index moved 0.9% lower on Monday, dragged down by declines in financial shares. Germany’s Deutsche Bank AG (DB - Analyst Report) weighed on the financial sector. Shares of Deutsche Bank tanked 7.1% on Monday after Chancellor Angela Merkel said that she wouldn’t offer state aid to the giant lender. Deutsche Bank faces a $14 billion fine from the U.S. Justice Department.
Politics also played a major role in making investors edgy on Monday. Ahead of the much awaited U.S. presidential debate, a national poll conducted by Bloomberg Politics had showed Trump with a two-point lead over Clinton. In contrast, Clinton held a six-point lead over Trump heading into the debate, according to an NBC News/Wall Street Journal poll.
The index gained 0.7% on Tuesday following broad based gains among technology and consumer-discretionary shares. The technology sector was boosted by Microsoft Corporation (MSFT - Analyst Report) , which eventually helped the broader markets settle in the green. Shares of Microsoft gained 1.9% on its initiative to increase its stake in the creative cloud space.
Consumer confidence touched a nine-year high in September, boosting consumer-discretionary shares. The Conference Board’s Consumer Confidence Index increased to its highest level since Aug 2007, which marked the beginning of the financial crisis leading to a severe recession in 2007-09. This shows that Americans are coming out from the long recession and continuing to support economic growth.
The index moved 0.6% higher on Wednesday mostly led by gains in energy shares. After a six-hour gathering in the Algerian capital on Wednesday, members of the OPEC agreed that they needed to curb crude output. Such an agreement was concluded for the first time since 2008, aiming to address concerns regarding a supply glut.
Along with OPEC’s decision to cap crude-oil output, drop in domestic crude supply also pushed oil prices up which in turn propelled energy shares higher. Orders for durable goods in the U.S. were little changed in August, while shipments of capital equipment declined for the fourth straight month indicating weakness in the manufacturing sector.
Components Moving the Index
NIKE Inc. (NKE - Analyst Report) posted first-quarter fiscal 2017 earnings per share of 73 cents, which jumped nearly 9% year over year, while substantially beating the Zacks Consensus Estimate of 56 cents.
Revenues 8% to $9,061 million in the reported quarter and exceeded the Zacks Consensus Estimate of $8,833 million. Further, sales grew 10% on a currency neutral basis. Revenues of the Zacks Rank #3 (Hold) stock’s NIKE Brand surged 10% on a currency neutral basis to $8,459 million.
Moreover, the NIKE brand’s Direct-to-Consumer revenues improved 22% in the quarter, mainly on the back of 49% online sales growth and a 10% rise in new store increases.
Additionally, revenues at the company’s Converse brand rose 4% to $574 million on a currency neutral basis, fueled by North American growth that was partly negated by weakness noted in Europe and Asia Pacific. (Read: NIKE Tops Q1 Earnings, Soft Future Orders Hurt Stock)
The Boeing Co. (BA - Analyst Report) has sold 28 wide-body jets to Saudi Arabian Airlines, as per media sources. The deal has been valued at $8 billion at current list prices. The deal covers the purchase of 15 777-300ER (Extended Range) jets and 13 787 Dreamliners by the national airline of the Saudi government as part of an extensive fleet modernization and expansion of services initiative by the Transportation Ministry of the country.
The airline mentioned that it has discarded four Boeing 747-400 jets from service this year and plans to remove 23 777-200s in 2016 and 2017. The move thus calls for the replacement of these planes with new ones. Boeing has a Zacks Rank #2 (Buy). (Read: Boeing Sells 28 Planes to Saudi Arabian Airlines for $8B)
American Express Co. (AXP - Analyst Report) has approved the repurchase of up to 150 million common shares. This authorization replaces the prior 150 million share repurchase program that had approximately 50 million shares of common stock remaining under board authorization.
American Express also approved a 10% hike in its quarterly dividend to 32 cents per common share from 29 cents. This increased dividend will be paid on Nov 10, 2016 to shareholders of record on Oct 7, 2016. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
United Technologies Corporation’s (UTX - Analyst Report) unit Pratt & Whitney recently entered into a definitive agreement with Hanwha Techwin Co. to acquire a 30% equity interest in P&W NGPF Manufacturing Company Singapore Pte. Ltd. (PWMS). Founded in 1952, Hanwha is a leading business conglomerate in South Korea. The company has a diversified portfolio ranging from explosives, retail, solar panels and financial services.
Per the joint venture, Pratt & Whitney will offer its complete assistance in the sourcing of critical parts while providing capital investment requirements with Hanwha. In addition, Hanwha has also acquired a call option from Pratt & Whitney to purchase more equity by 2023. United Technologies has a Zacks Rank #4 (Sell). (Read: UTX's Pratt & Whitney Inks Strategic Deals to Boost Growth)
Pfizer, Inc. (PFE - Analyst Report) has finally decided not to split its two segments – Innovative Health (IH) and Essential Health (EH) – into two publicly traded companies.
For years, the company has been facing pressure from investors and analysts alike to split into two separate companies in hopes of driving growth. In April, Pfizer said it would come up with a decision by the year end, following the termination of its planned $160 billion merger with Allergan plc (AGN - Analyst Report) .
However, per management of Zacks Rank #3 Pfizer, a recent analysis has showed that it was already favorably positioned to maximize shareholder value in its current form. Also, management said that a separation at this juncture would improve neither its cash flow generation ability nor the competitive edge of the businesses (Read: Pfizer to Stay Together as a Single Company After All)
Microsoft Corporation (MSFT - Analyst Report) and Adobe Systems Inc. (ADBE - Analyst Report) have collaborated to ramp up their stake in the creative cloud space. In a joint declaration on Sep 26, the duo confirmed that they are integrating each other’s cloud computing products to offer advanced data-driven sales and marketing capabilities to clients. Microsoft has a Zacks Rank #3.
Per the terms of the partnership, Microsoft Azure will host Adobe’s business software tools. Adobe Marketing Cloud in turn will host Microsoft’s Dynamics 365 business applications. In short, Azure is now the “preferred cloud platform” for Adobe products and Adobe Marketing Cloud the “preferred cloud platform” for Dynamics 365 product. (Read: Microsoft and Adobe Join Forces to Extend Cloud Presence)
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 0.8%.
Last 5 Day’s Performance
Next Week’s Outlook
Markets seem to have got a respite from recent headwinds due to the two major positive developments of the week. A surprise rebound in consumer confidence pushed consumer discretionary shares higher. Meanwhile, the landmark OPEC agreement on production control helped crude stocks find a firmer footing.
However, the durable orders’ reading was disappointing in nature. This is why the economic releases scheduled over the next few days, including the GDP report, are crucial. Going forward, the nature of these readings are likely to determine the direction of stocks.
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