The Dow declined on three of the week’s first four trading days, depressed by several factors. These included a Brexit-related announcement from the British Prime Minister. Reports that the ECB’s bond buying program may be wound up prematurely and indications that a rate hike was likely later this year also dampened investor sentiment. Ultimately, it was learnt that the ECB’s bond purchases are not being reduced, which reduced investor fears.
Last Week’s Performance
The Dow increased 0.9% on the last trading day of September, after Deutsche Bank AG (DB - Analyst Report) recovered from early losses to register strong gains. Shares of Deutsche Bank jumped 14% after AFP reported that the German bank might be close to reaching a settlement of $5.4 billion with the U.S. Justice Department.
Following this development, financial stocks gained significantly. Dow components Goldman Sachs Group, Inc. (GS - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report) rose 1.5% and 1.4%, respectively. The continuing oil price rally also boosted investor sentiment. Chevron Corporation (CVX - Analyst Report) and Exxon Mobil Corporation (XOM - Analyst Report) gained 1.6% and 1%, respectively. Meanwhile, personal income rose 0.2% in August.
The Dow increased 0.3% after OPEC members decided to reach a preliminary accord to curb oil production. The blue-chip index lost 0.8% in September as uncertainty prevailed over policy statements from the Fed and Bank of Japan (BOJ). The index climbed 2.1% during the second quarter. Markets rebounded from the steep losses it suffered on Brexit woes and corporate results came in better than expected.
The Dow This Week
The index decreased 0.3% on Monday after British Prime Minister Theresa May said the process of the U.K. leaving the European Union will start by next March. Further, shares of Deutsche Bank fell 0.8% over persistent concerns regarding its financial health after no official agreement between the bank and U.S. Department of Justice was announced. Additionally, the ISM manufacturing index rose to 51.5 in September raising speculation of a sooner-than-expected rate hike.
The index declined 0.5% on Tuesday following reports that the European Central Bank’s (ECB) bond purchasing program may be wrapped up ahead of its scheduled time of March 2017. Moreover, Richmond Fed President Jeffrey Lacker advocated rate hike chances in the near future, which also weighed on investor sentiment. Further, the International Monetary Fund (IMF) reduced growth outlook for U.S. economy.
The index increased 0.6% on Wednesday following encouraging economic data and rally in oil prices. ISM Services Index reached its highest level in eleven months, which raised Fed rate hike expectations. This in turn had a positive impact on financial stocks.
The EIA reported that the U.S. commercial crude oil inventories fell 3 million barrels to 499.7 million for the week ended September 30, in contrast to analysts’ projections of an increase of 2.6 million barrels. Meanwhile, U.S. private employers added 154,000 jobs in September, lower than analysts’ expectation of around 173,000 jobs.
The index decreased 0.1% on Thursday as investors awaited September’s jobs data. Encouraging manufacturing and services data released this week led to investors look for more clues about an impending rate hike in Friday’s job report. Additionally, initial claims fell last week by 5,000 to 249,000. It continued to remain below the key level of 300,000 for 83 straight weeks, its longest stretch since 1970. Moreover, its four-week moving average declined from 256,000 to 253,500, settling at its lowest level since December 8, 1973.
Further, ECB Vice President Vitor Constancio said that a report claiming that ECB policymakers have decided to cut back ECB’s bond buying volume in coming months “is not correct.” Constancio also said that the bond-purchase program will continue until the ECB is “satisfied that inflation is truly on the path to” their objective, and “at least until March of next year."
Components Moving the Index
Wal-Mart Stores Inc. (WMT - Analyst Report) has reportedly increased its stake in Chinese eCommerce website, JD.com, Inc. (JD - Snapshot Report) , to 10.8% from 5.9%, aiming to grab more market share in the world’s largest online market. Shares of JD.com jumped 7.5% in after-hours trading following the news.
The move comes nearly four months after Zacks Rank #3 (Hold) Wal-Mart inked a deal with JD.com to sell its Chinese eCommerce business, Yihaodian to JD.com in exchange for a 5% equity stake in the company.
JD.com is the second-largest online retailer in China after Alibaba Group Holding Ltd. BABA in terms of market cap. The expanded deal with JD.com is expected to offer Wal-Mart a better chance of competing in the cut-throat retail industry in China and expand its reach in the country. (Read: Wal-Mart Boosts Stake in JD.com, Expands Further in China)
The Coca-Cola Company’s (KO - Analyst Report) Japanese arm, Coca-Cola Japan recently backed the much-awaited merger between Coca-Cola’s largest independent bottlers in Japan – Coca-Cola West Co., Ltd. and Coca-Cola East Japan Co., Ltd. Coca Cola holds a Zacks Rank #4 (Sell).
In a stock swap deal valued at about 270 billion yen ($2.7 billion), the leading Japanese bottlers have agreed to integrate their businesses to form a new Coca-Cola bottling company, Coca-Cola Bottlers Japan Inc. (“CCBJI”).
Under the deal, Coca-Cola West will acquire Coca-Cola East Japan and the latter’s common shareholders will receive 0.75 Coca-Cola West common shares. Meanwhile, Coca-Cola West shareholders will own 53.3% of CCBJI while Coca-Cola East Japan shareholders will hold 46.7%. However, the proposed integration is yet to receive approval by the shareholders of both companies. (Read: Coca-Cola West, East Japan to Merge in a $2.7B Stock Deal)
Johnson & Johnson (JNJ - Analyst Report) subsidiary, Janssen Therapeutics announced that data presented from a phase III trial showed superior efficacy of its pipeline candidate guselkumab, over AbbVie Inc.’s ABBV drug Humira in the treatment of moderate-to-severe plaque psoriasis.
The active comparator arm of the VOYAGE trial evaluated guselkumab versus top-selling medicine Humira. The study demonstrated the statistically significant efficacy of guselkumab compared to Humira after week 16 which was maintained through 48 weeks of treatment.
Almost 50% of patients treated with Humira achieved near complete skin clearance versus 73% for guselkumab. Johnson & Johnson holds a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UnitedHealth Group Inc. (UNH - Analyst Report) recently introduced its 2017 Medicare Advantage and Part D prescription drug plans. These plans are based on its successful 2016 medical plan. The 2016 medical plan not only reflected the persistently stable Medicare Advantage premiums but also the benefits reaped by customers through low-premium prescription drug plans. UnitedHealth Group holds a Zacks Rank #2 (Buy).
The new medical plan – AARP MedicareRx Walgreens (PDP) – primarily focuses on customers looking for peace of mind. The Part D prescription drug plans are slated to serve these customers by providing them the convenience of shopping at their neighborhood from more than 8,000 locations of Walgreens Boots Alliance, Inc. WBA across the nation. Notably, Walgreens and Duane Reade are the plan’s preferred retail pharmacy chains that are included in the Retail Pharmacy USA Division of. (Read: UnitedHealth (UNH - Analyst Report) Introduces New Medical Plan for 2017)
Apple Inc. (AAPL - Analyst Report) recently expanded the availability of its mobile payment service Apple Pay in Russia. For this, the company has partnered with Mastercard MA and Moscow-based Sberbank in the region.
In 2014, Zacks Rank #3 Apple had introduced Apple Pay, a contactless payment technology to offer a hassle-free experience. Initially, the service took off with over 220K merchants in the U.S. alone and in partnership with global card processing giants – Visa (V) and MasterCard. The service has been expanded to regions like the UK, Australia, Canada, China, Hong Kong, Switzerland and others. (Read: Apple Pay Launched in Russia with Mastercard & Sberbank)
In other news, Apple Inc. recently lost another lawsuit to VirnetX Holding Corp. (VHC - Snapshot Report) . This time it will have to shell out approximately $302 million in royalties to VirnetX for the infringement of certain Internet security patents (Facetime and iMessage technology) owned by the latter. (Read: Apple Loses Yet Another Patent Lawsuit to VirnetX)
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 closed nearly flat.
Last 5 Day’s Performance
Next Week’s Outlook
Markets continue to be swayed by oil related news and any reports which could provide clues about the likelihood of a rate hike. As most of this week’s economic data has been encouraging in nature, investors are looking toward the all-important monthly jobs report for indications about an increase in interest rates. Meanwhile, another key Fed officials has put his weight being a rate hike. It is likely that September’s jobs data will have a major role in determining market movement in the days ahead.
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