The Dow enjoyed a week of steady gains with trade concerns largely taking a backseat. Worries related to trade were only evident on Tuesday after Mexico imposed tariffs on a wide range of U.S. products. A spike in yields boosted financials on Wednesday. Tech stocks continued to make steady gains until investors indulged in profit-taking on Thursday.
Last Week’s Performance
The Dow gained 0.9% last Friday on a stronger-than-expected jobs report, shrugging off trade off fears to some extent. The U.S. economy saw 223,000 job additions in May, exceeding the consensus estimate of 190,000. Moreover, unemployment fell to 3.8%, hitting an 18-year low. Shares of Goldman Sachs (GS - Free Report) surged 1.1%.
The index lost 0.5% over last week. The week was once again marred by trade war fears, as Trump imposed fresh tariffs on imported steel and aluminum from the EU, Canada and Mexico.
Also, growing political turmoil in two Eurozone countries, Italy and Spain, saw markets taking a hit. However, markets recovered slightly mid-week, as energy stocks rallied after oil prices surged.
The Dow This Week
The index gained 0.7% on Monday, as investors’ confidence bounced back owing to strong economic backdrop and easing global trade war fears. The rally was led by tech and consumer discretionary stocks. Shares of Walmart (WMT - Free Report) and Target (TGT - Free Report) surged 2.9% and 4.9%, respectively.
Apple Inc. (AAPL - Free Report) unveiled several tools that aim at popularizing augmented reality at its Worldwide Developers Conference (WWDC) that impressed investors. This saw the stock hitting an all-time high.
Microsoft Corporation (MSFT - Free Report) also hit an all-time high as its shares rallied on news of the company acquiring GitHub, a software developer platform for $7.5 billion.
The index declined less than 0.1% on Tuesday as tensions between the United States and a few of its trade allies once again dented investors’ confidence. Investors panicked as Mexico imposed tariffs on a wide range of U.S. products including pork, bourbon and some types of cheeses.
This was seen as a setback for a number of U.S. packaged food companies. Shares of General Mills (GIS - Free Report) and Kellogg (K - Free Report) declined 2% each. Shares of Goldman Sachs took a beating, as bond yields took a toll on banks and other financial companies that gain from rising interest rates
The index gained 1.4% on Wednesday. The rally was led by financial stocks, boosted by the rise in the benchmark 10-year Treasury yield and partly supported by robust economic data and easing of trade war fears.
On Wednesday, ECB’s chief economist Peter Praet signaled the end of the bond-buying program. As a result of this, bond prices fell, pushing yields higher. The 10-year Treasury note rose 5.9 basis points to 2.975%, its highest since May 24. This led to a rally in financial stocks.
The Dow gained 0.4% on Thursday after nearly two-thirds of the index’s components finished the day with gains. Investors sold off tech stocks, indulging in profit-taking. Traders remained wary even as the heads of the Group of Seven states met for a summit in Canada. Treasury yields declined after initially hovering around the 3% mark.
Components Moving the Index
3M Company (MMM - Free Report) recently announced the sale of substantial part of its Communication Markets Division to Corning Incorporated. Notably, Corning is a premier manufacturer of glass, ceramics and related materials for industrial and scientific applications. The transaction worth $870 million is likely to generate a full-year 2018 earnings benefit of 40-45 cents per share to Zacks Rank #3 (Hold ) 3M.
The Communication Markets Division incorporates the company’s optical and copper passive connectivity solutions such as xDSL, FTTx and structured cabling solutions. The sale of the remaining telecommunications system integration services business, which remains pending, is likely to be completed later in 2018 for about $30 million. (Read: 3M Divests Part of Communication Markets Arm for $870M)
Apple recently unveiled its new operating system for Apple Watch, the watchOS 5 at its Worldwide Developers’ Conference (WWDC). This new operating system primarily aims at providing an improved health activity platform. (Read: Apple Unveils watchOS 5, Looks to Expand in Healthcare)
Additionally, Zacks Rank #3 Apple’s CEO Tim Cook revealed that the number of registered developers on its App Store had hit 20 million. Further, Apple witnesses almost 500 visitors on App Store every week, due to its strong portfolio of apps.
Moreover, the App Store is significantly lucrative for the developers, as they have generated $100 billion in revenues from their apps on the store. (Read: Apple's App Developer Base Hits 20M, Competition Intensifies)
Johnson & Johnson (JNJ - Free Report) announced that Fortive Corporation FTV has offered to acquire its Advanced Sterilization Products (“ASP”) business, a unit of its surgical systems and instruments subsidiary Ethicon. Fortive has proposed a binding offer with an aggregate value of $2.8 billion for the unit. The offer comprises $2.7 billion in cash and $100 million in retained net receivables.
Zacks Rank #3 J&J has 120 days to accept the offer during which it plans to consult with various work councils. If the offer is accepted, the transaction is expected to close in early 2019. (Read: J&J Receives Buyout Offer for Sterilization Products Unit)
UnitedHealth Group Incorporated (UNH - Free Report) recently announced that it will propose a 20% increase on the quarterly dividend of 75 cents per share. Shareholders as of record on Jun 18, 2018 are expected to get the meatier dividend on Jun 26, 2018. The company’s current dividend yield of 1.21% is higher than 1.06% for the industry.
Apart from higher dividends, this diversified health and well-being company’s share repurchase program has also been renewed for lowering share counts and boosting its bottom line. The company has been authorized to buy back 100 million shares or approximately 10% of its outstanding shares. 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) cornered the limelight at the annual meeting of the American Society of Clinical Oncology (ASCO) in Chicago. After presenting “practice changing” lung cancer data on its PD-L1 inhibitor, Keytruda, the drug giant presented encouraging data from studies evaluating the drug in advanced melanoma and small cell lung cancer (SCLC) patients.
A new analysis of four-year data from the phase III KEYNOTE-006 study showed that 86% of the advanced melanoma patients remained progression free, 20 months after completing two years of treatment with Keytruda. (Read: Merck Presents Positive Melanoma Data on Keytruda at ASCO)
Microsoft put all speculation to rest by confirming the GitHub acquisition in after-hours trading, yesterday. The transaction, which involves Microsoft stock, is valued at approximately $7.5 billion.
On Jun 3, Bloomberg had reported that Zacks Rank #3 Microsoft is in advanced talks to acquire the open-source software development platform giant, GitHub. Notably, the company was last valued at $2 billion in 2015.
GitHub offers an open-source platform for coding enthusiasts and software developers. The platform brings developers together to work on projects without compromising on each other’s code. Founded in 2008, the “social coding” platform, which boasts of 28 million developers, has hosted around 80 million repositories, as of March 2018. (Read: Microsoft Puts Rumors to Rest by Confirming GitHub Buyout)
United Technologies Corporation’s (UTX - Free Report) operating segment, Pratt & Whitney announced that it has been awarded a $2-billion contract for the 11th lot of F135 propulsion systems, which will support all three variants of the F-35 Lightning II aircraft. United Technologies has a Zacks Rank #2.
The latest contract intends to reduce the propulsion system price, supporting the program affordability initiatives. Notably, this 11th low rate initial production (LRIP) contract will deal with 135 engines, apart from covering areas like program management, production support, engineering support, spare modules as well as spare parts. (Read: United Technologies Wins $2B Deal for F-35 Propulsion Systems)
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 1.8%.
Next Week’s Outlook
Markets are in the process of coming to terms with the trade worries which President Trump has triggered. While such fears receded at the beginning of the week, Mexico’s decision to impose retaliatory tariffs had investors worried on Tuesday. Additionally, the Fed is slated to raise rates next week, a move which is likely to rattle the markets.
Given this backdrop, it would only be natural for investors to turn to economic reports for encouragement. Several key pieces of data are lined up for released next week including retail sales. If most of these are encouraging in nature, stocks could soon return to their winning ways.
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