The index enjoyed a strong week of gains, boosted by expectations of a strong second-quarter earnings season. Strong economic data, such as last Friday’s jobs report also helped investors ignore trade tensions. However, trade war fears did make a comeback on Wednesday when President Trump’s decision to impose fresh tariffs on China temporarily halted the market rally.
Last Week’s Performance
The index gained 0.4% last Friday after investors ignored trade conflict between the United States and China, following strong job additions in June. The U.S. economy added 213,000 non-farm jobs in June, outpacing the consensus estimate of 196,000. Unemployment rate increased to 4%, primarily due to a 0.2% increase in the labor force participation rate.
The index gained 0.8% last week, reversing two straight weekly losses. Markets closed slightly higher on Monday. The initial decline owing to uncertainty revolving around President Trump’s trade policy was reversed by a rally in tech stocks.
Markets closed lower 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. However, on Thursday, markets closed higher following a rally in tech stocks.
The Dow This Week
The index 1.3% on Monday, recorded its biggest gain in more than a month. These gains helped the blue-chip index to return to positive territory for 2018. Moreover, the index also closed above its 50-day moving average for the first time since Jun 20.
Investors shrugged off trade war fears buoyed by strong economic data, primarily Friday’s jobs report. Encouraging data on U.S. trade deficit in May as well as strong consumer credit data increased investor’s appetite for riskier assets like equities.
The index gained 0.6% on Tuesday, posting its first four-day winning streak since Jun 11. Investors have pinned high hopes on second-quarter 2018 earnings resulting in evaporation of trade war concerns. A robust U.S. economy also boosted investors' confidence in equities.
The index lost 0.9% on Wednesday and once again entered negative territory year to date. President Donald Trump’s decision to impose a second round of tariffs worth $200 billion on Chinese goods halted the four-day market rally.
The new tariffs will undergo a two month review after which a final decision will be taken. Energy stocks plunged on Wednesday on trade war concerns and some positive news on the supply side.
The index gained 0.9% on Thursday, boosted by a rally in tech majors and Internet giants which negated trade tensions. Investors seem to be focusing on upcoming earnings and robust economic data. Shares of Microsoft Corporation (MSFT - Free Report) gained 2.2% to hit a record high.
Shares of Cisco (CSCO - Free Report) , Intel (INTC - Free Report) and Apple (AAPL - Free Report) gained 2.4%, 2.2% and 1.7%, respectively. Shares of Caterpillar (CAT - Free Report) and The Boeing Company (BA - Free Report) gained 2% and 1.6%, respectively.
Components Moving the Index
Boeing recently announced program deliveries across its commercial and defense operations for the second quarter of 2018. The figures show a 6% rise in commercial shipments and 64.4% decline in defense shipments from the previous year.
Zacks Rank #3 (Hold) Boeing reported second-quarter 2018 commercial deliveries of 194 airplanes, up year over year, primarily backed by the higher demand for 737 jets. Delivery of the single-aisle 737 jet increased to 137 in the second quarter of 2018 from the year-ago number of 123.
In its defense and space business, Boeing’s deliveries totaled 16 in second-quarter 2018, which plunged from 45 dispatched in the year-ago period. Boeing’s total deliveries were 210 units in the second quarter of 2018 compared to 228 delivered in the year-ago quarter. (Read: Boeing Q2 Commercial Deliveries Up Y/Y, Defense Takes a Hit)
Merck & Co., Inc. (MRK - Free Report) announced that the FDA has granted priority review to a supplemental new drug application (sBLA) for its PD-L1 inhibitor, Keytruda.
With the latest filing, Zacks Rank #3 Merck is looking to get Keytruda approved for the treatment of advanced hepatocellular carcinoma (HCC), a form of liver cancer in patients, previously treated with systemic therapy (sorafenib). The FDA is expected to give its verdict on Nov 9, 2018.
The sBLA was based on positive data from the phase II study KEYNOTE-224. The outcomes demonstrated that treatment with Keytruda monotherapy led to an overall response rate (ORR) of 16.3% in patients with advanced HCC. (Read: Merck's Keytruda Gets FDA's Priority Review for Liver Cancer)
Pfizer, Inc. (PFE - Free Report) announced that it is re-organizing its business into three business segments, separating its consumer healthcare business into a standalone unit. Beginning 2019, Pfizer will report under three new business units — Innovative Medicines, Established Medicines and Consumer Healthcare. Presently, Zacks Rank #3 Pfizer has two reporting segments — Innovative Health and Essential Health. (Read: Pfizer to Reorganize Business Into Three New Units)
In a separate development, in response to President Donald Trump’s tweet on Monday, Pfizer said that it will defer its recent price increases of several prescription drugs maximum until the end of the year. Chief executive officer Ian Read announced the decision following an “extensive discussion” with the President. (Read: Pfizer to Defer Price Increases After Discussion With Trump)
Chevron Corporation (CVX - Free Report) is set to put up many of its North Sea oil and gas assets for sale, in a bid to streamline portfolio. The assets it intends to offload include Britannia and its satellites, along with Alba, Alder, Captain, Elgin/Franklin and Erskine fields. The move is part of Chevron’s strategic review of global portfolio to determine the competitiveness of all its projects.
The decision seems to be a prudent one as extracting oil from North Sea is not so economical because production costs are much higher than the returns. Even other biggies like Bp plc (BP - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) have jettisoned their non-core assets in the region. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Microsoft is set to introduce Surface Go tablet in a bid to explore the low-priced tablet market. The news came as no surprise since the development rumors have been doing rounds since May following a Bloomberg revelation. Microsoft has a Zacks Rank #3.
The new Surface Go features a 10-inch screen and weighs 1.15 pounds, lighter than its prevailing Surface counterparts. The latest series is equipped with Intel’s processor and graphic chips.
The different variants of the new tablet series come with storage capacity of 64 GB, 128 GB and 256 GB with 4 GB or 8 GB RAM. Few of the models will also have features to connect with LTE cellular networks. Prices will range between $399 and around $549, according to the specifications. (Read: Microsoft Set to Launch $399 Surface Go, Ups Ante in EdTech)
JPMorgan Chase & Co. (JPM - Free Report) has initiated relocation plans for ‘several dozen’ of employees at its U.K. offices in a bid to ensure business continuity after Brexit. The news was first reported by Reuters in a memo that also outlined a plan to expand the bank’s presence in other European cities such as Paris, Madrid and Milan. JPMorgan has a Zacks Rank #3.
Most of the employees who will be relocating presently serve in client-facing and risk management-related roles at the company’s investment banking and asset management divisions, and have been asked to relocate before Brexit occurs in March 2019.
Till now, it is expected that the bank will move its employees and expand operations in Frankfurt, Luxembourg and Dublin, where it already has banking licenses. (Read: JPMorgan to Relocate Dozens of Personnel Pre-Brexit)
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 1.3%.
Next Week’s Outlook
President Trump remained determined to go ahead with his protectionist measures, particularly against China. This has made investors a tad jittery but they have largely ignored such concerns during what is fast becoming markets’ best week in recent times. If investors continue to focus strong economic data and upcoming earnings, markets could notch up more records in the week ahead.
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