The Dow endured a difficult week dominated by the Fed’s two day policy meeting. A key chipmaker component’s decision to buy an autonomous vehicle technology firm led to a decline for the index on Monday even as other benchmarks moved upward.
A decline in oil prices, an effect of oversupply concerns dragged the index lower on Tuesday. Thursday’s losses were attributable to a selloff in healthcare stocks. Only on Wednesday, when the Fed announced its rate hike decision did the index notch up gains.
Last Week’s Performance
The Dow increased 0.2% last Friday following a better-than-expected jobs report for February. The U.S. economy added 235,000 jobs in February, registering its best job growth since July 2016. Moreover, a sharp upward revision of January’s job numbers indicated strong job additions this year. Average hourly wages moved up 0.2% last month, also registering a 2.8% year-over-year increase.
The unemployment rate ticked down to 4.7% from 4.8% in February, matching the consensus expectation. Upbeat February jobs report led March rate hike expectations to increase further. As per the FedWatch tool of CME Group, expectations about a hike this month are currently at 93%.
For the week, the Dow declined by 0.5% after increase in domestic crude inventories weighed on oil prices. U.S. commercial crude-oil inventories rose by 8.2 million barrels last week, according to the EIA. Also, Baker Hughes Incorporated reported that last week, U.S. oil rig counts increased by 8 rigs to 617, registering its eighth consecutive week of gains. Both the Brent and WTI crude fell by 8.1% and 9.1% respectively for the week, with the WTI crude registering its biggest loss since the week ended Nov 4.
The Dow This Week
The index lost 0.1% even as other benchmarks closed in the green ahead of the Fed’s two-day policy meeting. The blue-chip index’s decline was caused by Intel Corp.’s (INTC - Free Report) decision to buy self-driving technology firm Mobileye N.V. (MBLY - Free Report) . Additionally, with the Fed widely expected to hike rates at its Mar 14-15 FOMC meeting, investors looked for clues about the pace and number of further rate hikes this year.
The index declined again on Tuesday, losing 0.1% after oil prices fell following a rise in crude oversupply concerns, OPEC reported that crude inventories throughout the globe have increased which weighed on oil prices, dragging energy stocks lower. Chevron Corp. (CVX - Free Report) and Exxon Mobil Corp. (XOM - Free Report) dropped 1.8% and 0.5%, respectively.
Additionally, a blizzard hit north-eastern U.S., which negatively affected airways, leading to losses for airline stocks. Investors refrained from making big bets during the Fed’s two-day policy meeting, which was scheduled to end on Wednesday.
The index gained 0.5% on Wednesday after the Fed decided to hike key interest rates at the conclusion of its two-day policy meeting. Although a more aggressive stance was expected from the Fed, it maintained a cautious approach in its policy statements which in turn boosted dividend-paying sectors high. Fed’s lack of hawkish stance weighed on the dollar.
Oil prices also received a boost from a weaker dollar as well as a surprise fall in domestic crude stockpiles. The EIA reported that U.S. commercial crude oil inventories fell 0.2 million barrels to 528.2 million for the week ended March 10, after increasing for nine consecutive weeks.
The index lost 0.1% on Thursday after declines in healthcare and energy stocks outpaced gains in financials sectors. Healthcare stocks declined yesterday following President Trump’s move to slash the overall budget for medical research and increase regulatory fees.
Moreover, rising crude oversupply concerns weighed on energy stocks. Financial stocks rallied northward following optimism that Fed’s decision to hike interest rates will boost the sector, which in turn helped curb some of the day’s losses.
Components Moving the Index
The Boeing Company (BA - Free Report) secured a modification contract from the U.S. Army for supplying lot 7-11 of AH-64E Apache attack helicopters to the government of Saudi Arabia. Work related to this multi-year deal is expected to be over by Jun 30, 2022.
Valued at $3.28 billion, this foreign military sales (FMS) contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL. Zacks Rank #3 (Hold) rated Boeing plans to utilize fiscal 2010, 2017, 2018, 2019, 2020 and 2021 other procurement (Army) funds to complete this deal.
Per the terms of the agreement, Boeing will offer full-rate production of remanufactured aircraft and new build aircraft, remanufacture and new build Longbow crew trainers, peculiar ground support equipment, initial spares, integrated logistics support, and engineering technical services. The company will carry out the work for this contract in Mesa, AZ. (Read: Boeing Inks $3.3B FMS Deal to Supply AH-64E Apache Copters)
Intel recently announced that it is buying Israel-based Mobileye, an autonomous vehicle technology provider, for a whopping $15.3 billion in an all cash deal.
Notably, Zacks Rank #3 rated Intel is paying $63.54 for each Mobileye share. This represents a 33% premium to the Mobileye’s closing price of $47.00 as of Mar 10. In response to the announcement, shares of Mobileye appreciated 28.24% on the bourses. However, the news failed to excite Intel shareholders and the stock was down 2.09% at the close on Mar 13.
Intel is fast gaining traction in the self-driving systems space through the acquisition of startups in the segment. With the buyout, Intel will now have access to Mobileye’s technologies related to cameras, in-car networking, sensor-chips, roadway mapping, cloud software, machine learning and data management. (Read: Intel Buys Mobileye to Boost Presence in Autonomous Cars)
Chevron recently announced that its subsidiary, Cabinda Gulf Oil Company, has begun oil and gas production at its Mafumeira Sul Project offshore Angola. Cabinda Gulf, the operator of the project, owns 39.2% stake. Angolan state oil major Sonangol holds 41% interest whereas European oil biggies TOTAL SA (TOT - Free Report) and Eni SpA (E - Free Report) hold 10% and 9.8% interests respectively.
This production commencement is in sync with the company’s 2017 objective of speeding up the completion of projects under construction and enhancing the free cash flow. The output from the project will lead to value addition for Angola, Chevron and its partners.
Mafumeira Sul, located 15 miles from Angolan coast and under 200 feet of water, is the second development stage of the Mafumeira Field. Its estimated daily production includes 150,000 barrels of natural gas liquids and 350 million cubic feet of natural gas. Production is expected to be gradually ramped up to full capacity by next year. 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 (UTX - Free Report) operating unit recently announced its was collaborating with AT&T Inc. (T - Free Report) to incorporate the latter’s wireless connectivity on commercial HVAC (heating, ventilation and air conditioning) equipment in its Smart Service solution. United Technologies has a Zacks Rank #3.
The Carrier SMART Service is a dynamic, proactive strategy for enhanced equipment and system management. The inclusion of AT&T’s network will help collect and analyze chiller operating performance for delivering pro-active service solutions.
This collaboration will help Carrier enhance services for its customers. It will be well placed to provide facility managers the capability to make more informed maintenance decisions. On using AT&T’s IoT (Internet of Things) technology, SMART Service will be able to curb chiller energy and maintenance expenses. (Read: United Technologies' Unit Partners AT&T to Enhance Portfolio)
Pfizer, Inc.’s (PFE - Free Report) rheumatoid arthritis (RA) drug, Xeljanz (5 mg taken twice daily) has received marketing approval in China to be used in combination with methotrexate (MTX) or other non-biologic disease-modifying antirheumatic drugs (DMARDs). Pfizer has a Zacks Rank #3.
Xeljanz (5 mg twice daily), a JAK inhibitor, is presently approved in the U.S. as a second-line treatment for moderate-to-severely active RA in patients who have had an inadequate response to or cannot tolerate methotrexate. In Feb 2016, the FDA approved a once-daily extended-release (XR) formulation of Xeljanz (11 mg) tablets. (Read: Pfizer's Arthritis Drug Xeljanz Gets Marketing Nod in China)
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 remained nearly unchanged.
Last 5 Day’s Performance
Next Week’s Outlook
With the Fed providing its widely expected rate hike call, the attention shifts squarely onto President Trump. The new administration has been pursuing its priorities swiftly and relentlessly, impacting different classes of stocks on every occasion. The budget proposal for 2018 is likely to dominate discussions in the days ahead, given its emphasis on defense spending.
Stocks from the sector will possibly notch up gains in the days ahead. In such an environment, economic data is unlikely to have a major impact on market movement. Even so, the tone of reports on housing and durable orders is likely to provide clues about the upcoming GDP report.
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