The Dow recovered from two weeks of losses to post strong gains this week. Multiple factors boosted the index, including comments from Larry Kudlow, which created optimism about a resolution to the U.S-China trade conflict.
Further, the Fed Chair adopted a relatively dovish tone on rates, boosting indexes higher. However, the index dipped toward the end of the week as hopes of a U.S.-China trade deal started to diminish.
Last Week’s Performance
The Dow lost 0.7% last Friday in a truncated trading session on the occasion of Black Friday, primarily due to precipitous decline of crude oil prices. On Nov 24, the U.S. benchmark WTI price slid $4.21 or 7.7% to settle at $50.42 a barrel. This was the worst single-day decline of WTI crude prices since Jul 6, 2015 and the lowest settlement since Oct 9, 2017.
Moreover, the ongoing trade war between the United States and Chins further intensified following news that the Trump administration has urged its close defense allies to stay away from telecom equipment made by Huawei Technologies of China.
The index slumped 4.4% over last week, which marked the worst Thanksgiving Day week for the Dow since 2011. During the week, crude oil price for both WTI and Brent crude crushed to their lowest levels in 2018.
Moreover, technology stocks continued their downward journey led by FAANG stocks. Additionally, lingering trade conflicts between the United States and China significantly dented investors’ confidence.
The Dow This Week
The index gained 1.5% or 354.29 points on Monday, recording its biggest gain since Nov 7. The market rebound was led by a rally in retail stocks on expectations of robust spending on Cyber Monday.
Also, tech stocks rebounded after witnessing huge selloffs last week, while crude oil prices posted their biggest percentage jump in five months. Shares of General Motors Company (GM - Free Report) gained 4.8%.
The index increased 0.4% on Tuesday after comments from U.S. National Economic Council Director Larry Kudlow raised hopes for a solution to the ongoing trade war with China. On Nov 27, Kudlow said the U.S. government has reopened negotiations on trade-related issues with China at several high powered levels.
Additionally, Kudlow stated that President Trump is hopeful that an amicable resolution to trade tensions can be reached during the upcoming G-20 summit. Despite a highly volatile trading session, U.S. stocks ended in the green for a second successive day with defensive stocks leading the gainers.
The index jumped 2.5% on Wednesday after Fed chair Jerome Powell indicated that key rates were close to a “neutral” level. Moreover, investors’ confidence on equities gathered steam following news that President Trump is looking for a way out to the ongoing trade disputes with China. Additionally, third-quarter GDP data confirmed robustness of the U.S. economy.
The index lost 0.1% on Thursday, ending its three-day winning streak as trade tensions resurfaced. The likely presence of White House advisor Peter Navarro at the dinner between presidents Trump and Xi on the sidelines of the G-20 summit diminished hopes of a trade deal between the United States and China.
Navarro is known for his adversarial stance on U.S.-China trade issues. Meanwhile, minutes of the latest Fed meeting more or less confirmed that a rate hike will take place in December. However, some officials did state that the federal funds rate was “near its neutral level,” in line with recent comments from Fed Chair Jerome Powell.
Components Moving the Index
The Boeing Company (BA - Free Report) recently secured a $383.4 million modification contract for providing Protected Tactical Enterprise Service (PTES). The contract was awarded by the Space and Missile Systems Center in El Segundo, CA.
This deal involves a joint ground platform that will offer tactically enhanced anti-jam satellite communications to war fighters in contested environments. Work related to the deal will be carried out in El Segundo and is expected get completed by Dec 31, 2025.
Zacks Rank #2 (Buy) Boeing will utilize fiscal 2018 and 2019 research, development, test and evaluation funds for the task. (Read: Boeing Wins $383M Protected Tactical Enterprise Service Deal)
Microsoft Corporation (MSFT - Free Report) recently secured a U.S. army contract, worth $480 million. The robust augmented reality (AR) capabilities of HoloLens are anticipated to enable U.S. army soldiers to combat real-life challenging conditions. Microsoft has a Zacks Rank #2.
In a bid to provide headsets befitting the requirements to deal with both live combat and training purpose, HoloLens will be enhanced with thermal sensing, scrutinize concussions, hearing protection and night vision features, among others.
The U.S. army anticipates the contract winner to furnish at least 2,500 headsets over a two-year period, with a capacity of full-scale production. Per reports, the contract is likely to eventually lead to order of more than 100,000 HoloLens headsets. (Read: Microsoft Secures Contract Worth $480M From U.S. Army)
Merck & Co., Inc. (MRK - Free Report) announced that the European Commission has approved two new HIV drugs — Pifeltro and Delstrigo — containing, doravirine, a non-nucleoside reverse transcriptase inhibitor (NNRTI), for the treatment of HIV-1 infection.
While Pifeltro is a once-daily single tablet containing doravirine to be taken in combination with other antiretroviral agents, Delstrigo is a once-daily fixed-dose combination regimen containing doravirine, lamivudine and tenofovir disoproxil fumarate. In the EU, the drugs are indicated for the treatment of adults with HIV-1 infection without past or present evidence of resistance to the NNRTI class.
The approval was expected as in September, the Committee for Medicinal Products for Human Use of the European Medicines Agency had given a positive opinion recommending approval of the two medicines. Pifeltro and Delstrigo are expected to be launched in the EU in the first half of 2019. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UnitedHealth Group Inc.’s (UNH - Free Report) shares gained 2% on Nov 27 after the company reaffirmed its 2018 earnings guidance and gave earnings insights for 2019.
For 2019, UnitedHealth provided initial adjusted earnings per share (EPS) outlook of $14.40-$14.70 (or $13.70-$14.00 on a GAAP basis, including intangible amortization). The company also provided initial guidance $243-$245 billion for revenues and $17.3-$17.8 billion for cash flow from operations.
Moreover, Zacks Rank #2 UnitedHealth reiterated its expectations for 2018 adjusted EPS to “approach $12.80.” Management also expressed confidence in its long-term earnings growth outlook, reiterating its growth target of 1316%. Two-thirds of this growth will be driven by earnings from operations and one-third from the application of capital.
The company expects membership growth in nearly all its business lines expect Part D Stand-Alone. Medicare Advantage is expected to see maximum growth in enrollment, as more baby boomers are reaching retirement age, pushing up demand for this service. (Read: UnitedHealth Gains on Strong 2019 Outlook, Acquisition News)
Pfizer Inc. (PFE - Free Report) announced that the FDA has granted pediatric exclusivity to its epilepsy drug, Lyrica. With this grant, the exclusivity of the drug has been extended by six months to Jun 30, 2019.
The pediatric exclusivity was granted based on data from Lyrica Pediatric Epilepsy Program. The program was carried out by Zacks Rank #3 (Hold) Pfizer upon FDA’s request to evaluate Lyrica as an adjunctive therapy to treat partial onset seizures in pediatric patients, aged four years and older, with epilepsy.
Lyrica is also approved for fibromyalgia, diabetic nerve pain, spinal cord injury nerve pain and pain after shingles in the United States.
The drug has already lost patent exclusivity in Europe, Russia, Turkey, Israel and Central Asia. In the United States, a favorable court decision, in July 2012, on generic challenges should protect Lyrica from genericization through Dec 30, 2018. (Read: Pfizer's Epilepsy Drug Lyrica Gets Pediatric Exclusivity)
Exxon Mobil Corporation’s (XOM - Free Report) Hibernia oil platform is slowly getting back to operations after the storm that disrupted production offshore Canada on Nov 16. Exxon Mobil has a Zacks Rank #3.
The Hibernia oil platform is located offshore Newfoundland and Labrador. Following a safety inspection, the company is undertaking inspection as production is underway from Nov 22.
Other partners of Hibernia include Chevron Corporation (CVX - Free Report) , Suncor Energy Inc. (SU - Free Report) , Murphy Oil, Hibernia Holding Corporation and Equinor ASA (EQNR - Free Report) . Hibernia is second among the four producing fields in the area to restart operations. The company-operated Hebron field started production last Wednesday. (Read: ExxonMobil's Hibernia Oil Platform Starts Operations)
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 3.2%.
Next Week’s Outlook
Markets have enjoyed a largely bullish week with recurrent tensions largely receding into the background. Following Kudlow’s comments a resolution to U.S.-China trade tensions seemed within reach. Meanwhile, the Fed Chair’s sudden change in stance on the federal funds rate gladdened investors.
By the penultimate trading day of the week, however, investors were receiving a reality check. Navarro’s presence at a crucial meeting between Trump and Xi is an ominous sign for U.S.-China trade relations. Also, the latest Fed minutes more or less confirmed a rate hike in December. Clearly, investors will continue to grapple with familiar tensions in the week ahead.
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