The Dow endured a turbulent week, marked by lingering trade tensions. The blue-chip index also closed below its 200-day moving average for four consecutive sessions. Conflicting signals emerged from the Trump administration on trade issues. These mixed signals led to a significant spike in volatility, with the index whipsawing during several trading sessions.
Last Week’s Performance
The Dow gained 0.5% last Friday, reversing an eight-session long losing streak. This was the blue-chip index’s longest stretch of losses since March 2017 and was just one day short of its all-time longest losing streak since 1978.
Gains were primarily attributable to an energy sector rally following the meeting between OPEC and Russia led consortium that took place in Vienna on Jun 22. Finally, OPEC decided to raise production quota by 624,000 barrels a day, much lower than 1.5 million barrels a day demanded by Saudi Arabia and Russia.
The index declined 2% over last week, its largest weekly decline since Mar 23 as well as its second straight weekly fall. The Dow declined modestly on last Monday, as trade war fears once again escalated making investors jittery. However, markets ended sharply lower on last Tuesday, as trade war fears escalated once again.
Growing fears of a U.S.-China trade war continued to take its toll on the Dow on last Wednesday and Thursday. Markets were further rattled after a Supreme Court ruling on sales tax saw shares of online retailers tumbling.
The Dow This Week
The index shed 1.3% on Monday, its biggest one-day drop since May 29, closing at its lowest level since May 4. Moreover, the Dow ended below its 200-day moving average, a psychological barrier to gauge its long-term momentum trends. Investors’ apprehensions about a trade war between the United States and China as well as with European Union continued to weigh on investor sentiment.
The index gained 0.1% on Tuesday but still ended below its 200-day moving average for the second straight session. Investors reacted cautiously as the U.S. government continues to provide mixed signals on the ongoing trade conflicts.
On Jun 24, The Wall Street Journal reported that President Trump is considering restricting Chinese investment in high-tech U.S. companies. On Jun 25, Treasury Secretary Steven Mnuchin first tweeted that the WSJ published “fake news”. However, he later clarified that restrictions will apply to all countries including China if they try to steal proprietary tech assets of U.S. companies.
The Dow lost 0.7% on Wednesday, closing at its lowest level since May 3. The blue-chip index ended 165.52 points lower after touching an intraday high of 285.91 points. This reflects the index’s largest intraday downslide since Feb 21. Moreover, the Dow ended below its 200-day moving average for the third straight session.
Markets opened on a positive note as President Trump stated that he has decided to strengthen the Committee on Foreign Investment in the United States (CFIUS), who will assess potential threat from Chinses investment in U.S. companies. This was a softer stand compared with Trump’s earlier decision to impose China specific investment restrictions.
Later in the day, Treasury Secretary Steven Mnuchin stated the government can block any American joint venture in China if the firm transfers critical technologies to China.
Moreover, White House economic advisor Larry Kudlow said the Trump administration’s revised approach related to Chinese investment in the United States should not be considered as a soft stand on China. Following these two developments, stock markets took sharp downturn.
The index gained 0.4% on Thursday, ending 98.46 points higher are dropping 100 points earlier in the day. Gains were largely broad-based with banks and tech stocks rallying strongly. Shares of JP Morgan (JPM - Free Report) and Goldman Sachs (GS - Free Report) each gained more than 1%.
Shares of Boeing (BA - Free Report) gained 1.5% to emerge as the best performer for the blue-chip index. Despite the recovery, the index closed below its 200-day moving average for the fourth session in a row.
Components Moving the Index
Nike (NKE - Free Report) posted fourth-quarter fiscal 2018 financial earnings of $0.69 per share, beating the Zacks Consensus Estimate of $0.64 per share. The company saw revenue figures of $9.79 billion, beating our consensus estimate of $9.39 billion.
Zacks Rank #3 Nike saw its quarterly revenues climb by roughly 13% from the year-ago period. The sportswear giant’s North American sales popped 3% to hit $3.88 billion.
Nike also announced a new four-year, $15 billion share repurchase plan of its Class B Common Stock, which will begin after the current $12 billion program is completed during fiscal 2019. (Read: Nike Beats Q4 Estimates, North American Sales Up 3%)
Disney (DIS - Free Report) recently announced that the Antitrust Division of the United States Department of Justice (DOJ) has cleared its pending acquisition of Twenty-First Century Fox’s (FOXA - Free Report) assets.
However, the approval is subject to the condition that Zacks Rank #2 (Buy) Disney will divest Fox Sports Regional Networks within a maximum of 180 days from the date of closing of the acquisition transaction. The regional channels include Fox's YES Network, which airs New York Yankees baseball games around the New York metro area. (Read: Disney Secures U.S. DOJ Antitrust Approval for Fox's Assets)
Intel (INTC - Free Report) recently announced that Brian Krzanich has resigned as the CEO and also from its board of directors after the company learned about Krzanich’s “past consensual relationship” with an employee. The company’s CFO, Robert Swan has been appointed as the interim CEO.
Realizing the gravity of the matter, the chipmaker cleverly timed the resignation announcement with a revision in guidance for the second quarter of fiscal 2018. The company is optimistic about delivering “another record year” in 2018.
Intel now envisions second-quarter fiscal 2018 revenues to come in at approximately $16.9 billion, up from the initial projection of $16.3 billion. Earnings are now anticipated to be 99 cents per share, considerably higher than the previously estimated 85 cents per share. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Walgreens Boots Alliance, Inc. (WBA - Free Report) reported adjusted earnings per share (EPS) of $1.53 in third-quarter fiscal 2018, up 15% year over year and 13.5% at constant exchange rate (CER). The figure surpassed the Zacks Consensus Estimate of $1.47.
On a reported basis, net earnings came in at $1.3 billion, reflecting an increase of 15.5% from the prior-year quarter. Reported EPS came in at $1.35, up 26.2% on a year-over-year basis.
Walgreens Boots recorded total sales of $34.33 billion in the fiscal third quarter, up 14% year over year and 11.8% at CER. The top line outpaced the Zacks Consensus Estimate of $33.65 billion.
Zacks Rank #3 Walgreens Boots has raised the low end of its outlook for fiscal 2018 EPS by 5 cents. The new projected range is $5.90 to $6.05. The Zacks Consensus Estimate for earnings is pegged at $5.96, within the company’s guided range. (Read: Walgreens Tops Q3 Earnings Estimates, Narrows View)
Pfizer (PFE - Free Report) announced disappointing overall survival (OS) results from the phase III PALOMA-3 study. The study showed that the combination of Ibranceand AstraZeneca’s (AZN - Free Report) Faslodex (fulvestrant) failed to improve OS compared with Faslodex and placebo in women with hormone receptor-positive (HR+), human epidermal growth factor receptor 2-negative (HER2-) metastatic breast cancer whose disease has progressed after prior endocrine therapy. Pfizer has a Zacks Rank #3.
The study is being conducted to assess the efficacy and safety of Ibranceplus Faslodex in women with endocrine therapy-resistant metastatic breast cancer. OS was a secondary endpoint for the PALOMA-3 trial. The company stated that, as a secondary endpoint, the study was not "optimized" to detect a statistically significant difference in OS. (Read: Pfizer's Breast Cancer Drug Misses Overall Survival in Study)
UnitedHealth Group Incorporated’s (UNH - Free Report) unit UnitedHealthcare Community Plan has been chosen by the State of Kansas as one of the three managed care organizations, delegated to administer the statewide Medicaid Program of KanCare. The program would be effective Jan 1, 2019. UnitedHealth has a Zacks Rank #3.
With this program, UnitedHealthcare Community Plan would be continuing to provide health benefit plans to adults and children alike, who might qualify for KanCare. This initiative would include proper accessibility to the care provider network of the plan along with health and wellness programs.
The receipt of this contract will add to the company’s Medicaid membership and total revenues in 2019. (Read: UnitedHeathcare Arm Gets Charge of Kansas Medicaid Program)
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 0.9%.
Next Week’s Outlook
Investors have had little to cheer about over the last few weeks, marked by severe uncertainty over trade issues. Though markets experienced better times this week, volatility increased substantially. It now seems that trade-related tensions will likely dominate proceedings in the weeks to come.
In such a scenario, economic reports assume special significance. Several crucial reports are lined up for release next week. If most of these are encouraging in nature, stocks could soon return to their winning ways.
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