The Dow enjoyed another week of substantial gains following optimism about Donald Trump’s policy proposals. Meanwhile, economic data released over most of the week was encouraging. Oil prices moved higher following speculation that OPEC’s member countries and Russia were close to reaching an agreement on curtailing crude output. Additionally, prospects of the Fed hiking rates in December continued to improve.
Last Week’s Performance
The Dow decreased 0.2% last Friday after rising rate hike possibilities boosted the dollar to its best settlement in 13 years. Rate hike chances gained momentum following expectations that the Trump Presidency will adopt new policies including expansionary infrastructure spending and tax cuts.
Sooner than expected rate hike chances boosted the dollar. According to Fact Set, the U.S. Dollar Index (DXY) settled at its best level since April 2003. Rising dollar weighed on export-based large-cap companies and eventually on broader markets. Moreover, oil prices fell after Baker Hughes Incorporated (BHI - Free Report) reported that U.S. oil rig counts experienced its biggest increase in 16 months.
The index increased 0.1% over last week. Most of last week’s gains came on the back of encouraging domestic economic data and Fed Chairwoman Janet Yellen’s testimony. Yellen indicated that a rate hike after next month’s policy meeting was definitely on the table.
The Dow This Week
The index increased 0.5% on Monday following strong surge in oil prices and sell-off in the dollar. Oil prices jumped following speculations that major OPEC members and Russia were likely to reach a deal to curtail crude production by the end of this month. Moreover, countries like Iraq and Iran, who were previously unwilling to limit crude production, also backed the deal.
Separately, the dollar fell yesterday primarily because the greenback became vulnerable to a sell-off after registering a rapid increase over the last ten sessions. Thin trading ahead of the Thanksgiving holiday also weighed on the greenback.
The index increased 0.4% on Tuesday following rising expectations from Donald Trump’s policy proposals and encouraging housing data. The Dow moved past the psychological levels of 2,200. Markets moved up following continued expectations that Trump will adopt new policies, including expansionary infrastructure spending, environmental and financial deregulation and tax cuts.
Moreover, Trump said that bilateral trade deals will be negotiated in order to “bring jobs and industry back onto American shores. Existing homes sales rose 2% in October from September to a seasonally adjusted rate of 5.60 million, to reach the highest annualized rate in more than nine years.
The index increased 0.3% on Wednesday after strong durable orders and Donald Trump’s economic agenda boosted the industrial sector. The Dow reached a record high level for the third straight session following continued expectations that Trump will adopt new policies to improve the economy. Moreover, orders for durable goods in the U.S. registered its best increase in a year.
Further, minutes from the Fed’s November meeting showed that following labor market improvements and higher inflation, policy makers were in agreement that interest rates should be raised "relatively soon". Markets were closed on Thursday following the Thanksgiving Day holiday.
Components Moving the Index
NIKE, Inc. (NKE - Free Report) announced a 13% hike in its quarterly cash dividend to 18 cents per share. The new dividend, applicable for Nike’s Class A and B shares, will be paid on Jan 3, 2017, to shareholders on record as of Dec 5, 2016. Notably, this represents the company’s fifteenth consecutive year of dividend hike, further underscoring its healthy cash flows and robust potential.
Additionally, Zacks Rank #3 (Hold) rated Nike repurchased 19 million shares for $1.1 billion in the last reported quarter, under its $12 billion share repurchase program approved in Nov 2015. With this, the company had repurchased about 39 million shares for roughly $2.2 billion under the program. (Read: NIKE (NKE - Free Report) Hikes Dividend, Bolsters Shareholders' Confidence)
The Boeing Company (BA - Free Report) and Textron Inc.’s (TXT - Free Report) strategic joint venture (JV) Bell-Boeing’s – wholly owned subsidiary Bell Helicopter – recently secured a modification contract worth $267.3 million. Work related to this deal is scheduled to be over by Nov 2018. Boeing has a Zacks Rank #3.
Per the terms of the deal, the JV will offer additional joint performance-based logistic support to the Marine Corps MV-22 and the Air Force and Special Operations Command CV-22 jets. The contract will utilize fiscal 2017 operations and maintenance funds of the U.S. Navy, Special Operations Command and Air Force as well as fiscal 2017 aircraft procurement funds of the U.S. Navy.
The contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Majority of the work will be carried out in Fort Worth, TX, Ridley Park, PA and other locations across the U.S. as well as outside the continental U.S. (Read: Bell-Boeing JV Wins $267M Navy Deal for CV-22, MV-22 Jets)
The Coca-Cola Company (KO - Free Report) entered into an agreement to divest its bottling assets in China for 5.87 billion yuan ($852 million), as part of its refranchising strategy to focus more on its core strengths of building great brands and leading a strong, global franchise system.
The agreement has been signed between Coca-Cola and its three main bottling groups in China: Coca-Cola Bottling Investments Group China (“BIG”), COFCO Coca-Cola Beverages Limited (a subsidiary of COFCO Corporation, “COFCO”) and Swire Beverages Holdings Limited (“Swire”).
Per the deal, COFCO, Swire will buy the entire bottling territory owned in China by Coca-Cola’s BIG. The cola giant currently owns approximately a third of its bottling in China, with the balance split roughly between Swire and China Foods Ltd., which is part of state-owned COFCO Ltd.
Post the completion of the deal, COFCO will own and operate 18 bottling plants while Swire will own and manage 17 in Mainland China. However, the divestment agreement in China is subject to regulatory approvals. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
IBM Corporation (IBM - Free Report) has announced the addition of four new cloud data centers in the U.K. that are capable of crunching huge amounts of data using their in- built cognitive intelligence technology.
The opening of the new cloud data centers is a step forward by Zacks Rank #3 rated IBM to meet the growing demand for cloud computing in the U.K. and across the globe as well as provide innovative solutions to its clients. IBM Cloud will now have six cloud data centers in the UK, 16 cloud data centers throughout Europe and over 50 cloud data centers throughout the world. (Read: IBM Expands Cloud Datacenters in the UK to Bolster Growth)
Johnson & Johnson’s (JNJ - Free Report) subsidiary, Janssen, announced that the FDA has approved its immunotherapy Darzalex to be used in combination with standard-of-care – Velcade (a proteasome inhibitor/PI) and dexamethasone or Revlimid (an immmunomodulatory agent) and dexamethasone – for the treatment of patients with multiple myeloma who have received at least one prior therapy. Johnson & Johnson has a Zacks Rank #3.
The approval came three months after a supplemental Biologics License Application (sBLA) was submitted in August. The FDA had granted breakthrough therapy designation to Darzalex for the combination use in July. Regulatory application for the indication is under review in the EU. (Read: J&J Immunotherapy Darzalex OK'd for Label Expansion by FDA)
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 1.1%.
Last 5 Day’s Performance
Next Week’s Outlook
While optimism about Donald Trump’s economic agenda remains undimmed, other factors are also boosting U.S. markets. For one, economic data released this week has been extremely encouraging. Additionally, it is increasingly likely that an agreement on crude production cuts will be announced next week.
This where the crucial GDP report and data on personal spending and consumer confidence scheduled for release next week assume greater significance. In case these reports are positive in nature stocks could scale even greater heights in the days ahead.
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