The index advanced strongly this week before suffering a sharp decline on Thursday. The United States, Canada and Mexico signed a new trade deal replacing NAFTA, boosting stocks on Monday. The index continued to gain over the next two days even as bullish economic data boosted bond yields. Ultimately, the surge in treasury yields led to the index’s biggest fall in two months on Thursday.
Last Week’s Performance
The index gained 0.1% last Friday as gains made by chip makers were offset by loss in social media stocks. Investors were by and large reluctant to take risks. Instead, they eagerly awaited third quarter earnings results which will flood the market within next couple of weeks. However, price movements were marginal in either direction.
The index gained 1.1% over last week. Markets were rattled in the first three days due to trade were fears and Fed’s interest rate hike for the third time this year. However, a partial recovery took place in the last two days buoyed by a series of strong economic data.
The index gained 1.9% in September, defying trade tensions. Despite imposing fresh tariffs, the U.S. government kept the rate at 10% instead of 25% talked earlier. A series of strong economic data significantly bolstered sentiments of market participants.
The Dow increased 9% over last quarter, adding more than 2,100 points. Robust performance by U.S. corporates in the second quarter of 2018, impressive fundamentals of the U.S. economy enabled investors to sidetracked trade related concerns and inflationary expectations.
The Dow This Week
The index advanced 0.7% on Monday, as the United States, Canada and Mexico signed a new trade deal replacing NAFTA. This new trilateral trade deal boosted market participant’s confidence due to elimination of some trade-related concerns.
The index gained 0.5% on Tuesday even as investors were busy weighing the positive and negative outcomes of trade-related developments. Moreover, socio-economic conflicts in European Union also compelled investors to speculate about their possible impact on the U.S. stock markets. Meanwhile, Fed Chairman’s comments eased market participants concerns about impending inflation.
The index increased 0.2% on Wednesday, finishing in the green for the fifth straight session. Strong performance of financials and energy stocks boosted broader markets. Yields on benchmark 10-Year and 30-Year Treasury Notes hit multi-year highs, driven by a series of strong economic reports released recently. Moreover, crude oil prices reached 4-year highs, boosting the energy sector.
The index lost 0.8% on Thursday, suffering its most grievous fall in two months. At one point the index had lost 1.3% or 357 points. The final decline was the highest in terms of points since Jul 11 and the worst in percentage terms since Aug 10. The trigger for the day’s losses was a sharp spike in the benchmark 10-year Treasury note yield, which moved above 3.2%.
This was its highest level since 2011. The spike in yields started after private payrolls surged in September. Meanwhile, the ISM services index hit an all-time high last month. Additionally, Fed Chair Jerome Powell stated that the central bank was “a long way” from setting a neutral reference rate. This was a clear indication that more rate hikes were in the offing.
Components Moving the Index
The Boeing Company (BA - Free Report) recently clinched a contract, with an estimated value of $9.2 billion, for delivering Advanced Pilot Training aircraft and ground-based training systems. The deal includes an initial order of $813.4 million. The contract was awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, Dayton, OH.
Per the terms of the deal, Zacks Rank #3 (Hold) Boeing will deliver of 351 aircraft and 46 associated training devices along with other ancillary supplies and services. Under this agreement, the company can supply up to 475 aircraft and 120 training systems for the U.S. Air Force.
Work related to the deal will be performed in St. Louis, MI and is expected to get completed by 2034. (Read: Boeing Wins $9.2B Deal for Advanced Pilot Training Program)
Intel Corporation (INTC - Free Report) has finally proven the rumors true by accepting its strained supply issues. Notably, Bob Swan, the company’s interim CEO, notified the status of the supply to customers and partners alike, in “an open letter.”
Swan is of the opinion that a stabilizing PC market has primarily led to the shortage. Nonetheless, in a bid to satiate the existing customers and the entities concerned, Swan reaffirmed Zacks Rank #3 Intel’s revenue outlook for fiscal 2018. Swan believes the chip maker “will have at least the supply” required to match the outlook on the back of $15 billion investment in capital expenditure (CapEx) in 2018.
In this regard, Swan stated that the company is incurring an extra $1 billion in CapEx to boost 14nm manufacturing processes across Ireland, Israel, Arizona and Oregon facilities. In the near term, the chipmaker will give precedence to deliver high end Core and Xeon chips to customers. (Read: Intel Keeps '18 View Despite Supply Concern, CapEx Up By $1B)
Chevron Corporation (CVX - Free Report) recently inked a deal to divest its entire stake in the Rosebank oilfield to Equinor ASA (EQNR - Free Report) , in a bid to streamline its portfolio and raise funds for future domestic capital expenditure. The financial terms of the deal have been still kept under wraps.
Notably, the field is co-owned by Chevron along with Suncor Energy Inc. and Siccar Point Energy. While Chevron is the chief operator of the field with 40% stake, Suncor and Siccar hold 40% and 20% non-operating interests, respectively.
Located offshore of the Shetland Islands, Rosebank field, which is one of the major undeveloped fields in the U.K. North Sea, is expected to have recoverable volume of more than 300 million barrels. Notably, Chevron’s plan to develop the field was put on the back burner during the industry downturn. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Microsoft Corporation (MSFT - Free Report) recently expanded its Surface family with the addition of new products featuring robust capabilities at an event in New York City. The major takeaways from the event were the introduction of Surface Laptop 2, Surface Pro 6 and Surface Studio 2 devices.
In a first, the tech giant also introduced smart Surface Headphones. Considering other accessory hardware, the company also announced Surface Pen, Surface Dial, variants of Surface Mouse, to mention a few.
In a bid to be consumer friendly, Zacks Rank #3 Microsoft announced Surface All Access program. It allows users to avail Surface Devices and Office 365 ("O365") subscription for low monthly installments. For instance, the installment of Surface Go Bundle starts at $24.99 per month. (Read: Microsoft Debuts New Surface Devices Ahead of Holiday Season)
Walmart Inc. (WMT - Free Report) unveiled intentions to buy Eloquii Design Inc., a plus-sized fashion retail brand. The buyout is expected to further embellish Walmart’s rich online portfolio basket. The deal is expected to close by the end of this quarter.
Zacks Rank #3 Walmart is renowned for constant endeavors to stay in tune with consumers’ preferences and explores ways to attract young shoppers. The latest inclusion of Eloquii will enable Walmart to venture into the fast-expanding category of plus-sized clothing.
Eloquii, which predominantly operates as an online retailer, has five retail stores. It manufactures and sells fashion apparel between sizes 14 to 28. (Read: Walmart to Foray Into Plus-Sized Arena With Eloquii Deal)
Pfizer Inc. (PFE - Free Report) announced that the FDA has approved Vizimpro (dacomitinib) for the first-line treatment of locally advanced or metastatic non-small cell lung cancer (NSCLC) in patients with epidermal growth factor receptor (EGFR) exon 19 deletion or exon 21 L858R substitution mutations. Vizimpro was reviewed and approved under the FDA’s Priority Review program.
The approval was supported by positive data from a global head-to-head phase III ARCHER 1050 study. The study evaluated dacomitinib (n=227) versus AstraZeneca’s (AZN - Free Report) lung cancer drug, Iressa (gefitinib) in patients with NSCLC with no prior therapy for metastatic disease or recurrent disease and who have been disease free for minimum of 12 months after completion of systemic therapy. (Read: Pfizer's Lung Cancer Drug Vizimpro Gets FDA Approval)
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 0.6%.
Next Week’s Outlook
Trade tensions receded somewhat this week following the signing of a new trade deal replacing NAFTA. However, concerns over a spike in yields led to heavy losses for the indexes on Thursday. The spike in yields was caused by the release of strong economic data and comments from the Fed Chair.
This factor is likely to remain a worry for investors next week. However, if investors choose to focus on the upcoming earnings season and strong economic fundamentals, markets could still return to their winning ways in the week ahead.
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