The Dow suffered a tough week, weighed down by trade tensions and the Fed’s third rate hike for the year. The latest set of U.S.-China tariffs came into effect on Monday, effectively ruling out proposed trade talks between the two counties. By Wednesday, the Fed’s fresh rate hike had dampened investor sentiment. The blue-chip index was only able to rebound on Thursday, buoyed by a raft of bullish economic data.
Last Week’s Performance
The index recorded its second straight all-time high, gaining 0.3% on last Friday led by a rally in industrials. On Sep 17, the Trump administration said it would impose 10% tariffs on $200 billion of Chinese goods, which would rise to 25% by year-end.
In retaliation, China said too announced 10% tariffs on 5,000 U.S. products worth $60 billion. However, 10% tariffs were seen as a relief compared to a harsher 25% tariffs, as feared by analysts.
This somewhat helped markets since a rally in industrial stocks followed. Shares of The Boeing Company (BA - Free Report) and Caterpillar, Inc. (CAT - Free Report) increased 1.3% and 0.2%, respectively. However, shares of technology and Internet-related stocks slumped. Shares of Apple, Inc. (AAPL - Free Report) declined 1.1%.
Moreover, on Thursday, markets gained after jobless claims dropped to their lowest level since November 1969. Bullish economic data indicates that economic fundamentals remain strong. This has negated trade tensions and aided markets.
The index gained 2.3% over last week, registering its highest weekly percentage gain since July. This was also the Dow’s second straight weekly gain. Markets opened the week on a low note Trump administration announced that it would impose fresh tariffs on Chinese goods.
However, the 10% tariffs imposed by both the United States and China were seen as better than the rate of 25% which was initially expected. This helped stocks rally on Tuesday. Moreover, strong economic data also helped markets.
The Dow This Week
The index declined 0.7% Monday as the fresh round of U.S.-China tariffs came into effect, dampening last week’s hopes of talks between the two countries. Moreover, investors were also closely watching the Fed’s two-day monetary policy meeting, which ends Wednesday and is likely to result in another interest-rate hike.
Shares of Boeing and General Electric Company (GE - Free Report) shed 1.1% and 3.5%, respectively. Also, news emerged that U.S. Deputy Attorney General Rod Rosenstein was about to quit. This made investors jittery, leading to a huge selloff.
The index lost 0.3% on Tuesday after the Trump administration stuck to its hard-line stance on trade. This led to chipmaker stocks once again taking a hit. Also, utilities declined ahead of the Fed’s expected interest rate hike, which offset gains made by energy stocks.
Meanwhile, U.S. consumer confidence rose unexpectedly to 138.4 in September, its highest level in 18 years. But trade war fears overshadowed the robust economic data after President Donald Trump at the United Nations General Assembly said that the United States “will no longer tolerate abuse” on trade.
The index declined 0.4% on Wednesday after the Federal Reserve hiked the key rate by 0.25%. Notably, this was the third rate hike this year. Further, the central bank has hinted at another rate hike this year and three more in 2019. The prospect of another rate hike this year weighed on investors.
However, market participants remain concerned that higher interest rate will raise the cost of funds. Investors are trying to gauge the combined effect of higher rates, an additional rate hike this year, inflation and trade tensions with China.
All these factors resulted in a broad-based market decline. Consequently, shares of Travelers Companies Inc. (TRV - Free Report) , DowDupont Inc. (DWDP - Free Report) and Chevron Corp. (CVX - Free Report) declined 1.4%, 1.6%, and 1.2%, respectively.
The index snapped a three-day losing streak on Thursday, increasing 0.2%. Strong economic data boosted stocks, overshadowing concerns about trade and the Fed’s fresh rate hike. Jobless claims increased more than expected but lingered close to record low.
Durable orders increased 4.5% in August. Meanwhile, the final estimate of second-quarter GDP came in at 4.2%, unchanged from the second estimate released in August. Shares of Apple gained 2.1% after an analyst at JPMorgan (JPM) initiated coverage of the stock with an overweight rating.
Components Moving the Index
NIKE Inc.’s (NKE - Free Report) fiscal first-quarter earnings per share of 67 cents rose 18% year over year and surpassed the Zacks Consensus Estimate of 62 cents. This marked its 25th straight earnings beat. NIKE has a Zacks Rank #3 (Hold).
Revenues of the Swoosh brand owner have increased 10% to $9,948 million, beating the Zacks Consensus Estimate of $9,883 million. This was primarily driven by double-digit growth at international locations and 6% growth in North America.
For second-quarter fiscal 2019, the company expects currency-neutral revenue growth of 9%, in line with the fiscal first quarter. However, taking into account the FX scenario, it expects reported revenues to be 2-3 points lower than the anticipated currency-neutral revenue growth. (Read: NIKE Q1 Earnings and Sales Top, FX Woes Hurt Stock)
Boeing recently won a $375.6-million contract for the replacement of UH-1N helicopters, also widely known as the Huey choppers, with four MH-139 helicopters. The contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, Ohio.
The latest deal is a sub-contract of a $2.38-billion contract, under which Boeing will provide up to 84 MH-139 helicopters, training devices and associated support equipment. Work related to the recent contract will be executed in Ridley Park and Philadelphia, PA.
The entire task is expected to get completed by September 2031, provided all options are exercised. Zacks Rank #3 Boeing will utilize fiscal 2018 research, development, test, and evaluation funds for the task. (Read: Boeing Clinches $376M Deal to Replace UH-1N With MH-139)
United Technologies Corporation’s (UTX - Free Report) unit UTC Climate, Controls & Security recently announced that it has agreed to acquire S2 Security. Notably, UTC Climate Control and Security is one of the leading manufacturers and distributors of HVAC and refrigeration systems for residential, commercial, industrial and transportation applications.
The buyout is conditional upon regulatory approvals and customary closing conditions. Based in Framingham, MA, S2 Security is the manufacturer of IP-based physical security and video management systems for healthcare, education and manufacturing companies in the United States and abroad. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
International Business Machines Corporation (IBM - Free Report) recently unveiled new and innovative Watson solutions and services aimed at accelerating artificial intelligence (AI) development. These solutions will cater to nine industries which include agriculture, customer service, human resources, supply chain, manufacturing, building management, automotive, marketing and advertising.
This initiative positions Zacks Rank #3 IBM well to gain momentum on the back of Watson. IBM’s AI Highlights technology will be integrated into agricultural Internet of Things (IoT) data to enable growers and enterprises analyze and enhance yield through improved decisions. (Read: IBM Unveils New AI Based Watson Solutions to Aid 9 Industries)
McDonald's Corporation (MCD - Free Report) declared a 15% hike in its quarterly dividend to $1.16 from $1.01 a share. The dividend will be paid on Dec 17, 2018, to shareholders on record as of Dec 3, 2018. Total fourth-quarter dividend payout is estimated to amount to $900 million.
Notably, the company has a history of increasing dividend almost every year since the inception of its dividend payout policy in 1976. Last September, Zacks Rank #3 McDonald’s raised its dividend by 7.4%. Prior to that, it had increased the quarterly dividend by 7%, 6%, 5%, 5%, 10% 15% and 11% in 2017, 2016, 2015, 2013, 2012, 2011 and 2010, respectively. (Read: McDonald's Rewards Shareholders With 15% Dividend Hike)
Pfizer, Inc. (PFE) announced that it has received Breakthrough Therapy designation for its 20-valent pneumococcal conjugate vaccine (20vPnC) candidate, PF-06482077, from the FDA. The candidate is being developed as a preventive treatment for invasive disease and pneumonia caused by Streptococcus pneumoniae serotypes in adult patients. Pfizer has a Zacks Rank #3.
The designation was granted on the basis of positive immunogenicity data from a phase II study of the multivalent pneumococcal conjugate vaccine in adults aged 60 to 64 years. Data from this mid-stage study will be presented at a future date. A phase III study is expected to be initiated in a few months. (Read: Pfizer's Pneumococcal Vaccine Gets Breakthrough Therapy Status)
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 0.8%.
Next Week’s Outlook
As was the case in recent weeks, trade tensions are continuing to weigh on investor sentiment. The latest Fed rate hike has also worried investors. Moreover, the U.S. central bank has indicated that a fourth rate hike is nearly certain before the end of the current year.
At this point, investors are looking at economic data for support. Reports on GDP, jobless claims and durable orders have all been extremely encouraging. Several crucial economic reports are also scheduled for release next week. If most of these are encouraging, stocks could once again to trend firmly upward.
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