The Dow endured significant losses over a holiday-shortened trading week. Markets were closed on Monday for the Labor Day holiday. The index endured its worst one day loss in several weeks on Tuesday following rising tensions over North Korea. The index rebounded on Wednesday after President Donald Trump concluded an agreement with Congress on the debt ceiling issue. However, losses for key components dragged the index lower on Thursday.
Last Week’s Performance
The index gained 0.2% last Friday after market watchers played down chances of a possible rate hike by the Fed following desultory nonfarm payrolls data for August. A total of 156,000 jobs were added to the U.S. economy in August, significantly lower than the consensus estimate of 180,000 job additions. While payrolls additions were lower than expected, the unemployment rate increased 0.1% to reach 4.4%. Meanwhile, the ISM Manufacturing Index hit a six year high for the month of August.
The index gained 0.8% last week. During this period, Hurricane Harvey pummeled Houston and forced major oil-refineries in the area to shut down. Moreover, North Korea test fired a ballistic missile over Japan, raising geopolitical tensions with the United States. Meanwhile, speaking to CNBC, U.S. Secretary of State, Steven Mnuchin said the Trump administration has presented a detailed tax plan to the Congress which they expect to sign into law by the year end.
The Dow This Week
Markets were closed on Monday for the Labor Day holiday. The Dow suffered a loss of more than 200 points, or 1.1%, on Tuesday to register its worst one-day drop since Aug 17, ending its four day winning streak. Such losses were incurred after investors rotated out of relatively riskier assets due to escalating tensions between Pyongyang and Washington. The likelihood of the fallout of another hurricane named Irma over the coast of Florida sent home insurers lower.
The index gained 0.3% on Wednesday after President Trump reached an agreement with key members of Congress to extend the debt ceiling deadline. This was done to aid the relief funding for victims of Hurricane Harvey. However, another category 5 Hurricane Irma gained momentum and is slated for land fall on the coast of Florida this weekend. News of Irma’s coming sent the timeshare and vacation stocks lower. Meanwhile, the Fed’s Vice Chairman announced his plans to retire in mid-October, citing "personal reasons."
The index lost 0.1% on Thursday, dragged down by shares of The Walt Disney Company (DIS - Free Report) and The Goldman Sachs Group, Inc. (GS - Free Report) . Disney’s shares lost 4.4% after CEO Bob Iger announced that the company’s earnings guidance for the full year was being revised downward. Shares of Goldman Sachs also declined 1.4%, weighing heavily on the Dow. Broader markets closed marginally lower as investors rotated out of financials and sought out telecom and consumer discretionary stocks.
Components Moving the Index
United Technologies Corporation (UTX - Free Report) recently inked a definitive agreement to acquire Iowa-based avionics firm, Rockwell Collins, Inc. (COL - Free Report) . The strategic transaction is likely to create an industry behemoth with an unrivaled competitive advantage, being one of the largest aircraft equipment manufacturers in the world in its individual capacity.
Zacks Rank #3 (Hold) United Technologies acquired Rockwell Collins for $140 per share in a combination of cash and stock. Under the terms of the agreement, each Rockwell Collins shareholder is entitled to receive $93.33 per share in cash and the balance amount or $46.67 in United Technologies’ shares. This equates to a purchase price of $30 billion, including Rockwell Collins' net debt.
The company expects to fund the transaction through secondary debt offering and available cash while maintaining solid investment grade credit ratings. The transaction is likely to close by the third quarter of 2018, subject to mandatory approvals and other customary closing conditions. (Read: United Technologies Inks Accretive Rockwell Merger Deal)
The Boeing Co. (BA - Free Report) recently announced that it is one of the six companies to receive the Aerospace Systems Air Platform Technology Research program contract from the United States. Air Force, which has a ceiling value of $499 million. Notably, Boeing is the final company to receive this award from Pentagon.
Per the contract, the company will be responsible for providing quality research for affordable, revolutionary capabilities for the warfighter. It was awarded by Air Force Research Laboratory, Wright-Patterson Air Force Base, OH.
Boeing expects to complete the task by Aug 31, 2025. The work will be carried out at the company’s Hazelwood, MS facility, and will utilize the fiscal 2017 research and development funds to finish the task. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Johnson & Johnson (JNJ - Free Report) announced that the FDA has approved a label expansion for its oral pulmonary arterial hypertension (PAH) medicine, Tracleer. Johnson & Johnson has a Zacks Rank #3.
Consequently, a 32 mg tablet of Tracleer is now approved for use in pediatric patients aged three years and older with idiopathic or congenital PAH to improve pulmonary vascular resistance (PVR), which is expected to result in an improvement in exercise ability.
With the approval, Tracleer has become the first medicine in the United States to be approved for use in pediatric patients. The 32 mg oral suspension formulation for pediatric use is expected to be available in the fourth quarter of this year. Presently, Tracleer is marketed in 62.5 and 125 mg dosages for adult patients. These will still be available. (Read: J&J PAH Drug's U.S. Label Expanded for Pediatric Use)
Merck & Co., Inc. (MRK - Free Report) announced that its anti-PD-1 therapy, Keytruda has received approval from the European Commission for the first and second-line treatment of certain patients with locally advanced or metastatic urothelial carcinoma, a type of bladder cancer.
Keytruda has been approved as a first-line therapy for patients who cannot receive standard of care chemotherapy containing cisplatin. Keytruda was also approved as a second-line treatment for patients who have been previously treated with platinum-containing chemotherapy. (Read: Merck's Keytruda Gets EU Approval for Bladder Cancer)
In a separate development, Zacks Rank #3 Merck announced that it will acquire Germany-based Rigontec, a privately held immuno-oncology focused biotech for an upfront cash payment of almost $137 million (115 million euros).
Rigontec is a leader in retinoic acid-inducible gene I (RIG-I), targeting therapeutics. It is a novel immuno-oncology treatment approach. The deal’s completion date is not yet disclosed, subject to certain closing conditions.
Apart from the upfront payment, based upon achievement of certain milestones, Merck may also make additional contingent payments worth approximately 349 million euros. (Read: Merck Opts for Buying German Immuno-Oncology Biotech)
Pfizer Inc. (PFE - Free Report) announced that the FDA has granted approval to Mylotarg for adult patients with newly diagnosed CD33-positive acute myeloid leukemia (AML). The drug also received approval to treat relapsed or refractory CD33-positive AML in adults as well as children (2 years and older). Pfizer has a Zacks Rank #3.
The approval was expected as the FDA’s Oncologic Drug Advisory Committee had voted in favor of Mylotarg’s approval in July 2017. However, it should be noted that the U.S. label of the drug will include a boxed warning for hepatotoxicity including severe or fatal hepatic veno-occlusive disease.
The approval was granted based on data from multiple investigator-led clinical trials, including ALFA-0701, AML-19 and MyloFrance-1. The ALFA-0701 phase III study evaluated Mylotarg in combination with chemotherapy in newly diagnosed AML patients. The drug showed significant improvement in event-free survival (EFS), achieving 17.3 months compared to 9.5 months for chemotherapy. (Read: Pfizer's Acute Leukemia Drug Mylotarg Approved by the 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 declined 0.5%.
Last 5 Day’s Performance
Next Week’s Outlook
Currently, investors seem to be weighed down by several concerns, both domestic and of foreign origin. While tensions over North Korea continue to simmer, another hurricane is likely to make landfall over the weekend. Such a crisis could occur even as Texas recovers from the effects of Hurricane Harvey. Given such a backdrop, only encouraging economic data can help markets return to their winning ways in the week ahead.
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