The Dow traversed a choppy week, marked by both gains and losses even as the much vaunted tax legislation finally gained legislative approval. The index increased on Monday on tax cuts hopes, but dipped on Tuesday following concerns that these changes may adversely impact future monetary stimulus. Another decline came on Wednesday following a pullback which occurred since investors had already priced in the impact of tax cuts. Ultimately, the index notched up gains on Thursday after banks and telecom companies pledged to provide better pay to their employees.
Last Week’s Performance
The Dow increased by 0.6% last Friday, hitting a new all-time high following optimism that the much awaited Republican tax Bill had garnered sufficient support from policymakers to enable it to be passed the following week. Support from Senators Bob Corker and Marco Rubio raised expectations that the tax related legislation would not face any further obstacles to its passage.
The index gained 1.3% last week following optimism over passage of the tax cut Bill and a higher rate environment. The Federal Reserve finally increased its benchmark interest rate by a quarter percentage point. The new rate of interest will hover between 1.25% and 1.5%. Further, central bank officials reiterated their earlier projection of three possible rate hikes in 2018.
The Dow This Week
The index gained 0.6% on Monday following rising optimism that the much awaited Republican tax Bill was likely to be passed this week. This development is expected to reduce U.S. corporate tax rates from 35% to 21%. The Dow notched up its 70th record close and advanced more than 5,000 points for the first time in a year. Additionally, a number of corporate deals also helped boost investor sentiment.
The index lost 0.2% on Tuesday after optimism over the passage of the Republican tax Bill was outweighed by its likely impact on future monetary stimulus. Further, investors widely expected that the much-awaited tax cuts legislation would be passed this week, which in turn resulted in a stock sell-off.
However, the House failed to comply with Senate rules on Tuesday, following which the House will re-vote for the tax Bill again on Wednesday. Housing starts rose to 1.297 million in November from the upwardly revised 1.256 million in October, well above analysts’ estimate of 1,251 million. Moreover, building permits increased by 3.4% year over year to settle at 1.298 million.
The index declined by 0.1% on Wednesday as investors remained indifferent even as Congress passed the much-awaited Republican tax Bill. During the day, all the three key U.S. indexes reached record high levels initially, but finished lower following a pullback. Markets had already traded higher over previous sessions on optimism over the passage of the tax cut Bill and witnessed a sell-off after both the Houses actually passed the Bill.
The index gained 0.2% on Thursday following gains in bank and energy stocks. Following the passage of the legislation related to tax cuts, major banks and telecom companies pledged to provide better pay to their employees, which in turn boosted investor sentiment.
Additionally, energy sector rallied upward after WTI oil prices hit their second highest level so far in 2017. Moreover, U.S. GDP increased in the third quarter, posting its best growth pace in more than two years, further supporting yesterday’s gains.
Components Moving the Index
Nike, Inc. (NKE - Free Report) posted second-quarter fiscal 2018 earnings of $0.46 per share, which beat the Zacks Consensus Estimate of $0.39. Revenues came in at $8.55 billion, also exceeding the Zacks Consensus Estimate of $8.39 billion. Nike has a Zacks Rank #3 (Hold).
Total revenues were up about 5% on a year-over-year basis. Revenues from the Nike brand were up 4% to $8.1 billion, while revenues for Converse were down 4% to $408 million.
Earnings were down about 8% from the year-ago period. Nike cited a decline in gross margin and higher selling and administrative expense as reasons for the earnings slump. (Read: Nike Posts Earnings Beat, Praises Direct-to-Consumer Efforts)
Pfizer, Inc.’s (PFE - Free Report) board of directors announced a 6% hike in the pharma giant’s quarterly dividend for 2018 while also authorizing a new $10 billion share repurchase program. The quarterly dividend was raised from 32 cents to 34 cents, which adds up to an annual dividend of $1.36 per share.
This amounts to an annual dividend yield of 3.7%. The increased dividend for the first quarter of 2018 will be payable on Mar 1, 2018, to shareholders of record at the close of business on Feb 2, 2018. (Read: Pfizer Hikes Dividend, Announces $10B Share Buyback Plan)
In a separate development, Zacks Rank #3 Pfizer announced that the FDA has approved its leukemia drug, Bosulif in first-line setting. The drug is now approved for the first-line treatment of patients suffering from chronic phase Ph+ CML. Please note that Pfizer has a partnership with Avillion for Bosulif. (Read: Pfizer's Leukemia Drug Gets FDA Nod in First-Line Setting)
Wal-Mart Stores, Inc. (WMT - Free Report) , soon to be branded Walmart officially, seems to be leaving no stone unturned to counter Amazon’s (AMZN - Free Report) rising dominance. The supermarket giant has forayed into the meal-kit space — a card already played earlier in the year by Amazon.
Well, sources revealed that Wal-Mart started selling meal-kits online toward the beginning of this month, giving competition to other meal-kit players like Blue Apron (APRN - Free Report) , HelloFresh and Plated. The big-box retailer is offering these kits through alliances with Home Chef and Takeout Kit, which are responsible for the fulfillment and delivery of these orders. Takeout Kit offers a wide range of global options, whereas Home Chef’s offerings are more on the classic side.
While Takeout Kit and Home Chef conduct the entire selling process, Walmart receives a small commission as well as a referral fee. The company’s meal-kit price ranges from $32 to about $79, with each kit serving roughly four people, as per media sources. Wal-Mart, which began this new venture with approximately 30 kits on its website, already has some options sold-out. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merck & Co., Inc. (MRK - Free Report) announced disappointing results from a pivotal phase III KEYNOTE-061 study, evaluating its anti-PD-1 therapy, Keytruda (pembrolizumab), as a second-line treatment for patients with advanced gastric or gastroesophageal junction (“GEJ”) adenocarcinoma.
The phase III study failed to meet its primary endpoint of overall survival (OS). Notably, the progression free survival (PFS) showed no statistical significance in the PD-L1 positive patient population.
However, Zacks Rank #3 Merck said that it will continue to evaluate Keytruda in two other phase III studies, both as a monotherapy as well as in combination with chemotherapy as a first-line treatment for patients with GEJ. (Read: Merck's Keytruda Misses Primary End Point for Gastric Cancer)
The Procter & Gamble Company (PG - Free Report) has appointed activist investor and co-founder of Trian Fund Management, Nelson Peltz to its board effective Mar 1, 2018 after a prolonged proxy battle.
The latest announcement came after Procter & Gamble revealed last month that Peltz is leading Ernesto Zedillo by 0.0016%, or 42,780 shares, out of the company's nearly 2.7 billion in diluted shares outstanding. However, in its latest sec filing, the company said that the results between Ernesto Zedillo and Nelson Peltz were extremely close, with Peltz receiving almost 50% of the shares voted.
Zacks Rank #3 Procter & Gamble announced that Zedillo and 10 others were re-elected. The company agreed to add Peltz to its board of directors as he had garnered so much shareholder support. “Because the election results were so close, and because a large number of shareholders voted for Nelson Peltz to be a Director, the Board has engaged in numerous discussions with Mr. Peltz regarding a Board seat,” the company said. (Read: Procter & Gamble Appoints Peltz to Board After Proxy Battle)
ExxonMobil Corporation (XOM - Free Report) is likely to end the five-decade old marketing joint venture with BHP Billiton Ltd (BHP - Free Report) due to concerns raised by the Australian Competition and Consumer Commission (ACCC) relating to gas supply and rising prices.
In 2016, the ACCC expressed alarm about the companies’ market on the Gippsland Basin, the biggest producer in the country’s southern states. The joint venture is the biggest producer in the Gippsland Basin. It was rumored that Zacks Rank #3 ExxonMobil and BHP Billiton will be compelled to end the joint venture and sell gas separately.
The companies argued that the joint venture bolstered the economy and the termination will make new investment and supplies in Gippsland Basin more complex.
The primary concern was that big gas buyers were receiving not more than two offers for multi-year deals. This will be possible only when ExxonMobil and BHP Billiton start marketing gas separately Consequently, ACCC announced that the companies will sell their gas separately from the Gippsland Basin from 2019.Legal actions can be taken if the partners fail to comply with the decision. (Read: ExxonMobil, BHP Billiton to Terminate Marketing JV in 2019)
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 1.9%.
Next Week’s Outlook
Investors must have heaved a sigh of relief when the tax cuts legislation finally gained the approval of both the House and the Senate. This brings to an end a long running political struggle and is likely to boost markets in the days ahead. Evidence of such a trend was visible on Thursday when the promise of higher pay from major companies boosted stocks.
Moreover, GDP data has exceeded expectations by a wide margin. Most other economic indicators have also been largely bullish and there is little to stop markets from notching up further records in the days ahead.
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