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The Dow racked up major gains over the week following increasingly positive sentiment over a Trump presidency. Financials strengthened as chances of a rate in December increased substantially. Meanwhile, tech stocks trended downward for some time before returning to their winning ways.

Oil prices, and subsequently the sector’s stocks, continued to be guided on inventories data and chances of an output cut. Fed Chair Yellen indicated that a rate hike was around the corner.

Last Week’s Performance

The Dow increased 0.2% last Friday as investors continued to cheer Donald Trump’s win in the Presidential election. The Dow registered gains for the fifth consecutive session and finished at an all-time record high for the second straight day. Investors continued to speculate that the Trump Presidency will boost economic growth and inflation through new policies including higher infrastructure spending and tax cuts.

Such expectations raised chances of rate hike in the near-term. Separately, Fed Vice Chairman Stanley Fischer also indicated that the central bank has started to believe that inflation rate in the U.S. is on the verge of picking up significantly, which may result in a rate hike. This had a positive impact on financial stocks.

The index gained around 5.4% over last week. This was the Dow’s best weekly performance since Dec 2011. A surprise election result led investors to speculate that a Trump Presidency may boost the U.S. economy. Most of last week’s gains came on the back of a rally in healthcare and financial stocks. While Clinton’s defeat played the main role in boosting healthcare stocks, rising expectations of a rate hike helped financial stocks surge.

The Dow This Week

The index gained 0.1% on Monday. The Dow’s winning streak extended to a sixth consecutive session to finish and the index finished at another all-time record high.  Shares of Apple Inc. (AAPL - Free Report) declined 2.5%. Shares of FANG stocks also declined. These losses dragged the technology sector down, which eventually had a negative impact on the benchmarks.

However, markets managed to offset most of the losses from tech stocks on the back of a continuing rally in financials. Expectations that inflation will rise in the near future have heightened, which in turn has raised chances of a rate hike next month. These factors continued to have a positive impact on financials.  

The index increased 0.3% on Tuesday with the Dow hitting an all time high for the fourth straight session on the back of strong rebound in energy and technology stocks. Renewed investor focus on investing in tech stocks offset concerns that Trump’s policies may have a negative impact on the sector. Apple Inc. and the FANG stocks increased significantly. Moreover, speculations resurfaced that OPEC members may come up with a fruitful solution to the output glut in their upcoming meeting, scheduled for Nov 30.

This had a positive impact on oil prices, which eventually boosted energy sector. Retail sales jumped 0.8% in October following a revised 1% increase in previous month, also higher than the consensus estimate of 0.6% rise. These were the best two-month gains registered in more than two years

The Dow slipped on Wednesday, losing 0.3%, as financial stocks failed to hold on to their winning streak. Overvaluation concerns may be one of the factors behind yesterday’s decline. In addition to retreat in financial stocks, decline in energy stocks weighed on the major benchmarks and led the Dow to end in the red for the first time in the last eight sessions.

The energy sector finished in negative territory after jump in the U.S. crude inventories offset rising speculations of an output cut. Alexander Novak, Russia’s Energy Minister hinted that major oil producers may enter into an agreement to reduce oil production at the Nov 30 meeting. However, oil prices ended in the red despite rising output cut chances after the EIA reported that crude stockpiles increased 5.3 million barrels for the week ending Nov 11.

The index rebounded on Thursday, gaining 0.2% to finish at a new record high. Most of the day’s gains came on the back of encouraging domestic economic data and Fed Chairwoman Janet Yellen’s testimony, which indicated that a rate hike after next month’s policy meeting is definitely on the table. She also added that inflation is gradually progressing towards the Fed’s 2% target and “near-term risks to the outlook were roughly balanced.”

Separately, CPI rose at a pace of 0.4% last month, its highest increase in the past six months, on the back of significant increase in gasoline prices. Housing starts soared 25.5% from September to 1,323,000, hitting their highest level since Aug 2007.

Components Moving the Index

Wal-Mart Stores Inc. (WMT - Free Report) reported third-quarter fiscal 2017 adjusted earnings (excluding non-cash gain from the sale of Yihaodian in China and tax impact of that gain) of 98 cents per share, which beat the Zacks Consensus Estimate of 96 cents by 2.1%.

Total revenue of the retailer came in at $118.2 billion (including membership and other income). The figure missed the Zacks Consensus Estimate of $118.5 billion by 0.3% but increased 0.7% year over year. Currency depleted sales by approximately $2.14 billion. 

Zacks Rank #3 (Hold) rated Wal-Mart expects U.S. comp sales growth in the range of 1%−1.5% for the 13-week period ending Jan 27, 2017. For fiscal 2017, Wal-Mart now expects its adjusted earnings in the range of $4.20−$4.35 per share, compared with $4.15−$4.35 projected earlier. (Read: Wal-Mart (WMT - Free Report) Q3 Earnings Beat on Comps, Revenues Miss)

The Home Depot Inc. (HD - Free Report) posted fiscal third-quarter adjusted earnings of $1.60 per share, which jumped 18.5% from $1.35 in the year-ago quarter and beat the Zacks Consensus Estimate of $1.58.

Net sales advanced 6.1% to $23,154 million from $21,819 million in the year-ago quarter. Further, the top-line marginally surpassed the Zacks Consensus Estimate of $23,036 million.

Zacks Rank #3 rated Home Depot reiterated its sales and comps guidance, while it raised its earnings forecasts for fiscal 2016. The company continues to project sales growth of 6.3%. Home Depot now envisions diluted earnings per share to grow about 15.9% year over year compared with $6.33 earned in fiscal 2015. (Read: Home Depot (HD - Free Report) Stock Up on Q3 Earnings and Sales Beat)

Cisco Systems Inc. (CSCO - Free Report) reported first-quarter fiscal 2017 earnings (including stock-based compensation) of 55 cents per share, which beat the Zacks Consensus Estimate by a penny. Excluding stock-based compensation, earnings decreased 3.3% from the year-ago quarter to 59 cents. Cisco has a Zacks Rank #2 (Buy)

Although revenues declined 2.6% year over year to $12.35 billion, the figure was ahead of the Zacks Consensus Estimate of $12.34 billion. Revenues include SP Video CPE Business for both the periods. Excluding SP Video CPE Business, revenues increased 1% from the year-ago quarter.

For the second-quarter of fiscal 2017, revenues (excluding the SP Video CPE Business) are expected to decline in the range of 2% to 4% on a year-over-year basis. Non-GAAP earnings are anticipated to be in the range 55–57 cents per share. The stock holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Walt Disney Company (DIS - Free Report) reported weaker-than-expected earnings and revenues in fourth-quarter fiscal 2016 after beating estimates in the previous quarter. The company’s earnings in the reported quarter came in at $1.10 per share, missing the Zacks Consensus Estimate of $1.15 and declining 8.3% year over year.  Revenues declined 3% year over year to $13,142 million and missed the Zacks Consensus Estimate of $13,469 million. Disney has a Zacks Rank #3.

However, Chief Executive Robert Iger remained optimistic about the company’s future. Iger is bullish on ESPN’s future, which has come under a lot of pressure as the Pay TV landscape continues to alter owing to the migration of subscribers to online TV. Further, it anticipates reporting modest earnings growth in fiscal 2017 but a "more robust growth" in fiscal 2018. (Read: Disney (DIS - Free Report) Q4 Earnings Miss; Stock Up on Optimistic View) 

Johnson & Johnson’s (JNJ - Free Report) subsidiary, Janssen Therapeutics, announced that the European Commission (EC) has approved its prescription drug Stelara for the treatment of moderate-to-severely active Crohn’s disease in adults. Stelara is presently marked in the EU and U.S. for the treatment of moderate-to-severe plaque psoriasis and active psoriatic arthritis. Johnson & Johnson has a Zacks Rank #3. (Read: J&J (JNJ - Free Report) Stelara Gets Approval in EU for Label Expansion)

Merck & Co., Inc. (MRK - Free Report) announced positive data from three phase II trials evaluating its pipeline candidate, MK-3682, in combination with grazoprevir and ruzasvir1 for the treatment of chronic hepatitis C (HCV) infection. Merck has a Zacks Rank #3.

Results from two studies showed that treatment with the all-oral, triple combination regimen (MK-3682B) resulted in high rates of sustained virologic response 12 weeks after the completion of the therapy (SVR12) in patients, with chronic HCV genotype (GT) 1 or GT3 infection, who received eight weeks of treatment with combination medicine. (Read: Merck's Triple Combination HCV Therapy Positive in Phase III)

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 0.7%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

-0.5%

+3.6%

GS

+5.3%

+31.1%

IBM

+0.4%

+8.5%

HD

-0.4%

-2.2%

BA

-1.1%

+11%

UNH

+2.6%

+15.5%

MCD

+4%

-5.4%

TRV

+1.9%

-0.1%

JNJ

-2.5%

+2.6%

AAPL

+2.9%

+16.3%

Next Week’s Outlook

Markets have increasingly warmed to the idea of a Trump presidency. Though tech stocks were initially hurt by some of his remarks made on the campaign trail, they seem to have found favor once again with investors. Meanwhile, financials are clear winners, gaining from rising chances of an easier regulatory environment and chances of a rate hike next month. Economic data has also been most encouraging, providing a firm basis to the Fed for raising rates. Overall, stocks seem set to notch up further gains in the week ahead.

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