The Dow traversed a holiday-shortened week during which trading volumes remained low. A rally in tech shares helped the index rebound on Monday after initial hiccups on trade tensions. However, a tech selloff reversed early gains, leading to losses for the index on Tuesday. Markets were closed on Wednesday for the Fourth of July holiday. The index advanced on Thursday, boosted by tech stocks which posted their best performance in more than a month.
Last Week’s Performance
The index gained 0.2% last Friday, the last trading session of the first half of the year. Energy and materials stocks helped markets on Friday, which saw the Dow increase as much as 293.47 points at one point.
Bank stocks performed well almost throughout the day after the Fed announced the second round of the stress test results. This led to major U.S. lenders announcing high dividend payouts and share buybacks, which saw bank shares rallying. However, a late session selloff in bank stocks led to markets shedding early gains.
The index declined 1.3% over last week on trade war fears. The Dow also lost 0.6% in June after trade tensions raised market volatility significantly. Despite trade related concerns, the index gained 0.7% during the second quarter.
The index declined 1.8% during the first half of 2018. Fears of a trade war made investors jittery, leading to huge selloffs. Tech stocks, which have rallied since 2017, also took a hit after Facebook, Inc. (FB - Free Report) got embroiled in a data-misuse scandal. This caused major tech stocks to decline on fears of a regulatory clampdown.
The Dow This Week
The index increased 0.2% on Monday, gaining 35.77 points, after declining as much as nearly 200 points earlier in the session. The initial decline owing to uncertainty revolving around President Trump’s trade policy was reversed by a rally in tech stocks. Shares of Facebook, Netflix, Inc. (NFLX - Free Report) and Amazon.com, Inc. (AMZN - Free Report) increased 1.6%, 1.7% and 0.8%, respectively.
The index declined 0.5% on Tuesday as a selloff in tech stocks pared earlier gains made by energy stocks. Trade war fears continued to haunt investors who felt jittery leading to huge selloffs.
Shares of Boeing (BA - Free Report) and Caterpillar (CAT - Free Report) declined 0.9% and 1.8%, respectively. Apple (AAPL - Free Report) was one of the biggest losers, declining 1.7%. Trading volumes were lower, as markets closed at 1 p.m. ET ahead of the Fourth of July holiday.
Markets were closed on Wednesday for the Fourth of July holiday. The index gained 0.8% on Thursday, boosted by tech stocks which posted their best performance in more than a month. Shares of Intel INTC and Walgreen Boots (WBA - Free Report) gained 2.6% and 2.7%, respectively, emerging as the strongest performers for the index.
Reports of the United States and European Union (EU) planning to withdraw auto tariffs reinstated investors’ confidence to some extent. However, investors continued to feel jittery as United States prepared to slap tariffs on Chinese imports.
The latest Fed minutes indicated that the country’s central bank was worried that allowing the economy to run too strong could result in significant economic slowdown. The central bank also acknowledged to that risks from U.S. trade policy “had intensified.”
Components Moving the Index
Merck and Co., Inc. (MRK - Free Report) gained priority review for yet another supplemental biologics license application (sBLA) for its PD-1 inhibitor, Keytruda. With the latest application, Zacks Rank #3 (Hold) Merck is looking to get Keytruda approved in combination with chemotherapy for the first-line treatment of metastatic squamous non-small cell lung cancer (NSCLC), which is a difficult-to-treat lung cancer patient population.
The FDA granted priority review to this sBLA with a decision scheduled on Oct 30. The sBLA filing was based on data from the KEYNOTE-407 study. At the recently concluded annual meeting of the American Society of Clinical Oncology, data presentation from this pivotal lung cancer study resulted in Merck emerging as a winner at this annual key cancer event. (Read: Merck's Keytruda Gets Priority Review in Difficult Lung Cancer)
The Goldman Sachs Group, Inc. (GS - Free Report) will be reviewing equity capital market transactions at its Australian branch after being accused of misleading potential investors in a block trade transaction that the unit had undertaken in relation to shares of Healthscope Limited in November 2015. Goldman Sachs has a Zacks Rank #2 (Buy).
The Australian Securities and Investments Commission (“ASIC”) has put forth concerns over "certain representations" that Goldman Sachs Australia made to investors about minimum fixed demand.
Goldman Sachs Australia (GS Australia) has been asked to pay $500,000 into a community fund and sign an enforceable undertaking that will require it to tighten controls of its bookbuild messaging of certain transactions. (Read: Goldman Signs Undertaking With ASIC Over Block Trade)
The Boeing Company (BA - Free Report) and Bell Helicopter’s joint venture (JV) Bell-Boeing recently secured a modification contract in relation to V-22 aircraft. Per the terms, the JV will convert the V-22 tiltrotor aircraft advance acquisition contract to a multiyear contract. Bell Helicopter is a unit of Textron Inc. (TXT - Free Report)
Valued at $4.2 billion, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the agreement, the JV will involve in the manufacture and delivery of 39 CMV-22B aircraft for the U.S. Navy; 34 MV-22B aircraft for U.S. Marine Corps; 1 CV-22B for the U. S. Air Force; and 4 MV-22B aircraft for the government of Japan.
The majority of the work will be executed in Fort Worth and Amarillo, TX; and Ridley Park, PA; while the rest will be carried out in various locations within continental and outside continental United States. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
International Business Machines Corporation (IBM - Free Report) recently entered into an enterprise services deal with France-based, Cegid. Notably, Cegid offers cloud-based management solutions that enhance performance of the financial and accounting related processes. Per the agreement, Zacks Rank #3 IBM’s hybrid cloud architecture will provide a platform facilitating Cegid’s service delivery. (Read: IBM Cloud Capabilities to Aid Cegid, Expands Europe Presence)
In a separate development, IBM recently entered into an infrastructure outsourcing deal with Denmark-based KMD. The contract value is estimated around $320 million. Notably, IBM already offers mainframe services to the technology company under its current outsourcing contract. (Read: IBM Signs a Deal Worth $320M, Strengthens Ties with KMD)
American Express Company (AXP - Free Report) announced that it will increase the quarterly dividend by 11.4% to 39 cents per share, beginning the third quarter. It also plans to repurchase up to $3.4 billion of common shares during the CCAR (Comprehensive Capital Analysis and Review) approval period of the third quarter of 2018 through the second quarter of 2019. American Express has a Zacks Rank #3.
This announcement came on the back of a “no-objection” nod received by the company from the Board of Governors of the Federal Reserve System to its capital plan submitted recently. The plan submission was part of the 2018 CCAR. (Read: AmEx to Up Dividend, Share Buyback Post Stress Test Clearance)
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 0.1%.
Next Week’s Outlook
A trade war between the United States and China seems to have begun in earnest with the imposition of tariffs on $34 billion of Chinese goods starting today. These tensions are likely to make their presence felt in the trading sessions which lie ahead. Investors will now look toward the crucial economic reports lined up for release over the next few days for encouragement in the days ahead.
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