The Dow traversed a difficult week, declining over every single trading session. These losses were primarily attributable to an escalation in the trade conflict between the United States and China. President Trump expressed his intention to impose additional tariffs on Chinese goods. Toward the end of the week, tech stocks managed to recover from trade tensions. But industrials continued to be weighed down by the looming trade war.
Last Week’s Performance
The Dow declined 0.3% or 4.83 points, after having shed as much as 280 points at one time as investors somewhat shed worries of a United States-China trade war. These fears were triggered by President Trump’s announcement that tariffs would be imposed on Chinese goods worth $50 billion.
The new tariffs come into effect from Jul 6. Moreover, Trump said that the United States would impose more import duties if China decides to retaliate by imposing tariffs on U.S. products. Shares of Boeing (BA - Free Report) and Caterpillar (CAT - Free Report) declined 1.3% and 2%, respectively.
The index lost 0.9% over last week. It was an eventful week that saw a historic meeting between Trump and North Korea’s premier Kim Jong-Un. This saw markets rallying on Monday. However, markets ended mixed on Tuesday as the meeting failed the generate investor enthusiasm. Midweek, the Fed hiked the benchmark fund rate by 25 basis points, which saw markets ending in the negative territory.
However, markets bounced on Thursday, led by a rally in media and telecom stocks. Also on the same day, the ECB, announced after its governing council meeting that the central bank will continue its low interest rate policy until mid-2019.
The Dow This Week
The index declined 0.4% on Monday as trade war fears once again escalated making investors jittery. Shares of Boeing and Caterpillar declined 0.9% each. Shares of Intel Corp INTC lost 3.4%.
The fifth consecutive slide for Dow is the longest decline since a similar phase ended on April 24. However, stocks managed to end well off session lows, as energy shares helped pare losses to some extent.
The index declined 1.2% on Tuesday as trade concerns heightened after President Donald Trump threatened to impose additional tariffs on another $200 billion of Chinese goods, and China said that it would retaliate.
The Dow lost 287.26 points, with shares of trade-sensitive industrial stocks suffering the most. Shares of Boeing and Caterpillar declined 3.8% and 3.6%, respectively.
The index lost 0.2% on Wednesday, registering its seventh straight daily loss. Large cap tech companies bounced back with shares of Apple (AAPL - Free Report) and Alphabet (GOOGL - Free Report) gaining 0.4% and 0.5%, respectively. This was a consequence of The Walt Disney Company’s (DIS - Free Report) revised bid for Twenty-First Century Fox’s (FOXA - Free Report) film and television assets.
The Dow lost 0.8% on Thursday, declining for the eighth successive session. This is the longest losing streak since Mar 2017. Concerns surrounding a prospective trade war continued to dampen investor sentiment. Shares of Boeing and Caterpillar declined 1.5% and 2.5%, respectively. Both of these stocks are vulnerable to trade tensions due to their heavy foreign exposure.
Components Moving the Index
American Express Co. (AXP - Free Report) has launched a new credit card named, American Express Cash Magnet Card in an effort to attract customers. The card’s special features like unlimited 1.5% cash back on small to big purchases, absence of an annual fee, Pay It Plan It payment mode make the card quite attractive to the company’s customers. American Express has a Zacks Rank #3 (Hold).
Moreover, the card’s Plan It feature system provides customers with flexibility to pay up for purchases by splitting big buys over a span of time with a fixed monthly fee but no interest. The Pay It feature allows card holders to clear smaller purchase amounts as soon as they appear on their bill, lowering their payment burden in the process.
Other benefits on the card include a complimentary ShopRunner membership and Amex Offers rewarding Card Members at places they like to shop, travel and dine. (Read: American Express to Woo More Clients Via New Credit Card)
Disney sweetened its bid to acquire Twenty-First Century Fox, Inc.’s assets on Jun 20, surpassing Comcast Corporation’s (CMCSA - Free Report) all-cash offer of $65 billion made last week. On Wednesday, Fox accepted Zacks Rank #2 (Buy) Disney’s fresh offer of $71.3 billion to acquire its film and television assets.
The new offer is not only $18.9 billion higher than its first bid made in December, but also $6.3 billion more than Comcast’s all-cash offer of $65 billion made last week. Reportedly, the offer would split the payout 50/50 between cash and stock. This outbids Comcast’s offer last week to pay $35 per share for Fox assets, all cash. (Read: Is Disney's Counter Bid Paving the Way for Media Consolidation?)
The Boeing Company (BA - Free Report) recently secured a $6.6 billion contract for delivering 24 cargo aircraft to FedEx Express, which is a subsidiary of Tennessee-based FedEx Corporation FDX, per major media sources. Per the terms, FedEx has ordered 12 of Boeing’s 767 freighter aircraft and 12 of the twin aisle large-sized 777 cargo aircraft.
With the latest deal inked, Boeing has further strengthened its relationship with FedEx, one of its major cargo customers for nearly 41 years now. Notably, FedEx is currently the largest customer for both 767 and 777 cargo aircraft models of Boeing. FedEx also owns Boeing’s 777F EcoDemonstrator that provides clear air-turbulence detection and ground-collision avoidance, and flies on 100% biofuel to reduce carbon emissions. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
General Electric Company (GE - Free Report) , the American multinational conglomerate, and the last original company from the 1986 Dow, is no longer on the 30-stock index. On Jun 19, S&P Dow Jones Indices, a division of S&P Global, announced the departure of the beleaguered conglomerate Zacks Rank #5 (Strong Sell) General Electric from the Dow 30.
Notably, GE will cease to be part of this closely watched index of the U.S. stock markets from Jun 26. The drug store chain Walgreens Boots Alliance Inc. (WBA - Free Report) will replace GE in the 30-stock blue-chip index.
The Dow was formed in 1896 and GE is one of the 12 original members of the index. It has been a continuous member since 1907. GE’s removal from the elite Dow 30 index reflects the tectonic shift in prominence of companies in U.S. economy. (Read: Dow Bids Adieu to GE, Welcomes Walgreens)
In a separate development, GE has announced that will lay off as many as 1,200 jobs in Switzerland, all related to its power generation business. Notably, this plan is a part of the company’s cost-reduction initiatives announced in 2017. (Read: General Electric to Lay Off Employees, Aims Cost Reduction)
International Business Machines Corporation (IBM - Free Report) recently acquired Oniqua Holdings Pty Ltd. for an undisclosed amount. Oniqua provides Internet of Things (“IoT”) based maintenance, repair and operations (“MRO”) inventory optimization solutions. This buyout will bolster IBM’s Asset Optimization Practice.
Zacks Rank #3 IBM plans to merge its asset optimization solutions with that of Oniqua’s. Specifically, Oniqua’s flagship service — MRO solution — when combined with IBM’s asset optimization solution Maximo will assist IBM to provide a “Solutions-as-a-Service” based solution. (Read: IBM Adds Asset Optimization Capabilities With Oniqua Buyout)
Microsoft Corporation (MSFT - Free Report) recently acquired Minneapolis-based startup, Flipgrid. The startup is an interactive social learning app for teachers and students with a collaborative approach. The app will be integrated with Zacks Rank #3 Microsoft’s products, enabling students to record and share videos with others. (Read: Microsoft Buys Flipgrid, Ups Ante in Edtech Against Google)
The software major continued its acquisition spree with the recently announced deal to buy Bonsai, an artificial intelligence-based (“AI”) startup. Bonsai develops AI driven technology which improves the functioning of intelligent autonomous systems. The terms of the deal have been kept under wraps. (Read: Microsoft to Add Automated AI Capabilities With Bonsai Buyout)
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 lost 1.5%.
Next Week’s Outlook
Markets are feeling the heat as trade tensions between the United States and China build up into a full scale trade war. Tech stocks have managed to recover somewhat as investors feel they will come out largely unscathed from this crisis. But industrials are feeling the heat and may continue to decline.
On the whole, stocks across the board are bearing the brunt of trade tensions to a greater or lesser degree. Given such a backdrop, investors will look toward crucial economic reports on GDP and durable orders for a much needed boost in the week ahead.
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