The Dow ended its record run of wins to suffer a dramatic decline near the end of the week. Stellar earnings performances helped the index register its 35th record close for 2017 on Monday. But by Tuesday, the tide had turned with the index closing in the red after Trump sounded off a strong warning to errant North Korea. Such saber rattling ultimately led to significant losses for the blue-chip index as well as broader markets on Thursday.
Last Week’s Performance
The blue-chip index registered its 34th record for 2017 to finish above the 22,000 threshold yet again last Friday. The index gained 0.3%, ending in the green for the ninth straight trading day. This is highest number of gains recorded since February. The Goldman Sachs Group, Inc. GS contributed the most gains toward the index’s stellar performance during this session.
Such gains were primarily attributable to an astounding number of job additions in the month of July. A total of 209,000 new jobs were created within the United States. In the past two months alone, there a total of 450,000 new jobs have been added to the economy.
The index gained 1.2% last week, marking its second straight weekly increase. The Dow has finished in positive territory now for four out of the five past weeks. The Dow surpassed the 22,000 milestone riding high on performances from JP Morgan (JPM - Free Report) , 3M (MMM - Free Report) and Goldman Sachs. Also, The Boeing Company (BA - Free Report) has added 300 points to the blue chip index since February, helping it to cross the psychological milestone.
The Dow This Week
The index increased 0.1% on Monday to register its 35th record close for 2017, ending above the psychological 22,000 mark yet again. The index also increased for the tenth straight trading day, the highest since February. The blue-chip index rose 2.8% since February, with Boeing and Goldman Sachs contributing to the majority of the gains.
The index lost 0.2% on Tuesday, ending its 35-session record run of wins for the year on Tuesday, tumbling after Trump sounded off a fresh warning to North Korea. President Trump announced that North Korea would be dealt with “fire and fury like the world has never seen”, if the rogue country continues to threaten the U.S. The blue-chip index was led lower primarily by a drop in shares of Merck (MRK - Free Report) , DuPont (DD - Free Report) and Nike NKE.
The index declined by 0.2% on Wednesday, briefly slipping below the 22,000 milestone but pared losses to finish above the psychological level. Decline in the Dow was primarily due to losses made by shares of The Walt Disney Company (DIS - Free Report) after the media behemoth announced plans to end its distribution deal with Netflix, Inc. (NFLX - Free Report) .
The index lost 0.9% on Thursday even as all benchmarks endured their most dismal trading day since the middle of May. This the third successive session when all three benchmarks have suffered losses and marks the first such reverse since the middle of April.
Broader markets were weighed down by heightened tensions between the U.S. and North Korea. The Dow was weighed down primarily by Apple Inc. (AAPL - Free Report) and Goldman Sachs, which lost 3.2% and 2.4%, respectively. Only three of the 30 Dow components managed to close the day with gains.
Components Moving the Index
Disney posted better-than-expected earnings for the third straight quarter, as it reported third-quarter fiscal 2017 results. The company’s earnings in the reported quarter came in at $1.58 per share, beating the Zacks Consensus Estimate of $1.53 but decreased 2.5% year over year. Meanwhile, revenues came in at $14,238 million, almost flat year over year but missed the Zacks Consensus Estimate of $14,442 million.
Concurrently, Zacks Rank #3 (Hold) rated Disney stated that it will terminate distribution agreement with Netflix for subscription streaming of the new movies starting in 2019. Instead, the company will have its own streaming services – one for Disney and Pixar brands and another for ESPN followers. (Read: Disney Q3 Earnings Top, Unveils Streaming Services)
Boeing has finalized an order for delivering 12 737 MAX airplanes to Air Lease Corporation (AL). Although details of the contract have been revealed recently, the order was announced during the Paris Air Show. The deal comprises order for five 737 MAX 7s and seven 737 MAX 8s. It also includes two new orders for the 787-9 Dreamliner. (Read: Boeing Secures 12 737 MAX Jets Order from Air Lease)
Additionally, Zacks Rank #3 rated Boeing has clinched a contract for Next Generation Thermal, Power and Controls (NGT-PAC) program. Work related to this deal is scheduled to be over by Jul 2024. Valued at $409 million, the contract has been awarded by the Air Force Research Laboratory, Wright-Patterson Air Force Base, OH. (Read: Boeing Wins $409M Air Force Deal for NGT-PAC Program)
Cisco Systems Inc. (CSCO - Free Report) won a temporary victory in a long-running patent infringement case at International Trade Commission (ITC) against its close rival Arista Networks (ANET - Free Report) .
Notably, Zacks Rank #3 rated Cisco filed the complaint (“945 investigation”) with ITC in late 2014 alleging Arista of infringing six patents. On May 5, 2017, ITC issued a “limited exclusion order” and “cease and desist” order after it found that Arista’s Ethernet switching products violated two patents (“577” and “668”).
As per a recent 8K filing by Arista – following disapproval by the United States Trade Representative of ITC’s Final Determination in the case – it is now barred from importing and selling the aforesaid Ethernet switching products in the U.S.
However, the victory may be short-lived for Cisco. According to the 8K filing, the Patent Trial and Appeal Board (PTAB) has issued final written decisions invalidating all claims related to the above mentioned patents, which Arista was found infringing by ITC. (Read: Cisco Wins Temporary Victory, Arista Products Faces ITC Ban)
Intel Corporation INTC has become the latest tech company to announce plans to build self-driving cars as it tries to stay ahead of competition from Qualcomm (QCOM - Free Report) and Nvidia NVDA. Zacks Rank #2 (Buy) rated Intel plans to build 100 cars to test its self-driving technology. The cars will be “level 4” vehicles, which mean they will be able to handle most driving situations themselves. They will be tested in the U.S., Israel, and Europe.
These new cars will include technology from the Israeli tech company Mobileye (MBLY), which is the world’s largest supplier of systems used in automotive collision detection systems. As of Aug 8, Intel has officially completed its acquisition of 84% of Mobileye for $15.3 billion. (Read: Intel Announces Plan to Build Self-Driving Cars)
DuPont and Dow Chemical (DOW - Free Report) said that they have received all required regulatory approvals and clearances for their planned mega-merger. The companies expect their ‘merger of equals’ to complete after the market closes on Aug 31.
Shares of both the companies will cease trading at the close of the NYSE on Aug 31. Moreover, shares of the new combined entity, “DowDuPont” will start trading on the NYSE under the ticker symbol "DWDP" on Sep 1.
Following the completion of the merger, the combined entity would eventually break up into three independent companies through tax-free spin-offs. The planned breakup is still expected to take place within 18 months after the completion of the deal. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Goldman Sachs has agreed to sell its remaining stake in Rothesay Life Plc to its existing shareholders, Blackstone Group LP BX, Massachusetts Mutual Life Insurance Co. and GIC Pte, Singapore’s sovereign-wealth fund. The transaction is expected to be completed by the end of 2017.
Per a Bloomberg article, the deal has been valued at $2.6 billion. Upon the execution of this deal, the company’s shareholders will acquire a portion of Zacks Rank #4 (Sell) rated Goldman Sachs’ stake, with Blackstone and GIC holding the highest percentage. (Read: Goldman Sachs to Divest Remaining Stake in Rothesay Life)
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 by 1.1%.
Last 5 Day’s Performance
Next Week’s Outlook
Investor focus has squarely shifted from earnings and broader economic themes to rising geopolitical tensions between the U.S. and North Korea. Market watchers believe that it is unlikely that an actual conflict may break out. At the same time, a short breather may actually be beneficial for stocks given that gains had continued over a record period. It remains to be seen to what extent North Korea centric tensions weigh down markets in the days ahead.
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