The Dow experienced a turbulent week, even as the broader market was guided by the fortunes of tech stocks. On the first day of the week, tech stocks rebounded, helping the index move higher. However, a decline in energy shares led to the blue-chip index closing in the red on Tuesday and Wednesday. The index was dragged lower by consumer staples and financials stocks on Thursday.
Last Week’s Performance
Last Friday, the Dow gained 0.1% to post its 21st record close of the year headed by a gain in energy shares. Oil prices recovered on Friday from their lowest level since November, after U.S. rig additions declined and certain oil producing countries cut exports. Chevron Corp CVX and Exxon Mobil Corp XOM gained 1.9% and 1.5% respectively.
Decline in consumer staples shares pared some gains on the broader markets after Amazon.com, Inc. (AMZN – Free Report) announced plans to purchase Whole Foods Market WFM. Additionally, technology shares continued to decline as investors remained concerned about overvaluation. Meanwhile, privately-owned housing starts declined by 5.5% in May to a seasonally adjusted annual rate of 1,092,000.
The index gained 0.5% over last week. The Fed hiked the key interest rate on Wednesday by 25 basis points, as was widely anticipated. Retail sales declined in and the consumer price index declined in May. Meanwhile, technology shares suffered several setbacks throughout the week on overvaluation concerns.
The Dow This Week
The index advanced 0.7% on Monday, setting both an intraday as well as a closing high. Tech shares rebounded as Apple Inc. (AAPL – Free Report) finished 2.9% higher, posting its largest one-day gain since February. Shares of Facebook, Inc. (FB – Free Report) gained 1.5%. Amazon advanced 0.8%, hitting an all-time high at the beginning of the session.
Additionally, financials moved north after New York Federal Reserve President William Dudley expressed concern over the prevailing level of inflation. Meanwhile, investors also kept a close watch on the outcome of the final round of voting in French parliamentary elections.
The index declined 0.3% on Tuesday, dragged down primarily by decline in energy shares. Oil prices declined to a nine month low in the backdrop of global glut in crude production as major oil producing countries increased crude output. Tech shares continued to decline as investors remained concerned about valuation. Additionally, investors remained focused on the outcome of the special election for Georgia’s sixth Congressional district.
Energy shares continued to decline on Wednesday, leading to a 0.3% decline for the Dow. Oil prices dropped as investors remained concerned over global glut in crude production as major oil producing countries increased crude production. Financials declined as investors digested several comments from Fed officials. Meanwhile, biotechnology stocks gained following the issuance of a draft executive order which seeks to soften certain regulations for pharmaceutical companies.
The index lost 0.1% on Thursday after losses made by consumer staples and financials outweighed gains notched up by biotech and healthcare stocks. Healthcare stocks continued to gain following the issuance of a discussion draft of a Bill which seeks to reduce the extent of Medicaid and abolish penalties imposed on individuals who do not purchase insurance.
Components Moving the Index
The Boeing Company (BA – Free Report) has received an order to transform 100 of its existing orders of 737 MAX jets to that of 737 Max 10 jets. The order was placed by United Airlines, the subsidiary of United Continental Holdings Inc. (UAL – Free Report) , at the 2017 Paris Air Show. (Read: Boeing Wins 100 737 MAX 10 Jets Order from United Airlines)
Boeing nabbed a number of other orders worth billions at the 2017 Paris Air Show for its commercial jets. To mention the notable ones, Zacks Rank #3 (Hold) rated Boeing received a commitment for 50 737 MAX 10 airplanes, valued at approximately $6.24 billion at list prices, from Lion Air Group.
The aerospace behemoth signed a memorandum of understanding (MOU) with SpiceJet for 40 737 MAX airplanes. The agreement is valued at $4.7 billion at current list prices. Boeing also signed an MOU for 42 737 MAX 8s, 10 737 MAX 10s and eight 787-9 Dreamliners with CDB Aviation Lease Finance, based in Dublin, Ireland, valued at $7.4 billion at list prices. Apart from this, the company bagged an order from AerCap for 30 787-9 Dreamliners, worth $8.1 billion at list prices. (Read: Boeing Wins Big Orders for Airplanes at Paris Air Show)
Wal-Mart Stores Inc. WMT recently announced plans to acquire Bonobos, one of the most popular men’s clothing online brands in the U.S. Wal-Mart has been contemplating the acquisition since April to expand in the fast-growing online retail market and compete against the largest U.S. online retailer, Amazon.com.
Wal-Mart will pay $310 million in cash for the buyout, which is still subject to regulatory approval. The deal is expected to close toward the end of the second quarter or the beginning of the third quarter of this fiscal year. (Read: Wal-Mart to Buy Online Men’s Fashion Retailer Bonobos)
Johnson Johnson (JNJ – Free Report) announced that its immunotherapy, Darzalex has been approved for use in combination with Celgene Corporation’s CELG multiple myeloma drug Pomalyst (pomalidomide) and dexamethasone. The combination has been approved for the treatment of patients with multiple myeloma who have received at least two prior therapies including Revlimid (an immunomodulatory agent) and a proteasome inhibitor (PI). (Read: JJ Immunotherapy Darzalex Ok’d for Expanded Combination Use)
In a separate development, Johnson Johnson announced that three-year follow-up data from a late stage study, evaluating its cancer drug Imbruvica (ibrutinib) against Pfizer Inc.’s (PFE – Free Report) Torisel (temsirolimus) for treatment of patients with relapsed or refractory mantle cell lymphoma (MCL) was encouraging. The stock has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Verizon Communications Inc. (VZ – Free Report) emerged as the fastest high-speed network operator among all other mobile networks in the U.S., according to a latest study conducted by PCMag.com. According to the test, Verizon offers the most reliable and consistent high-speed network overall. The stock has a Zacks Rank #4 (Sell).
Verizon topped the list with a total score of 97 points, whereas T-Mobile US, Inc. TMUS and ATT Inc. (T – Free Report) scored 96 and 93 points, respectively. Sprint Corporation (S – Free Report) finished last with 74 points. The result indicates the strong competition among the carriers to improve their individual network performance. While Verizon has the fastest mobile network overall, T-Mobile offers quite the same performance at a comparably less cost. (Read: Verizon Crowned the Fastest Network in U.S. in Latest Study)
DuPont (DD – Free Report) and Dow Chemical (DOW – Free Report) have said that the Antitrust Division of the United States Department of Justice (“DOJ”) has approved their proposed $130 billion mega-merger. DuPont has a Zacks Rank #3 (Hold).
The companies have entered into a proposed agreement with the DOJ that will allow them to proceed with their planned merger. This represents another major milestone for the proposed merger transaction. The companies noted that the proposed agreement with the DOJ remains subject to court approval and does not require them to make any additional divestments.(Read: Dow, DuPont Mega-Merger Gets U.S. Antitrust Go-ahead)
Chevron has welcomed a recent verdict of the U.S. Supreme Court. The ruling immunized Chevron from the payment of a landmark $9.5 billion fine for a pollution related case in Ecuador.
Residents of Ecuador alleged that Texaco – subsidiary of Chevron – let out wastewater into open pits across vast swaths of Lago Agrio region. A case pertaining to the same was filed in the U.S. However, the same was dismissed and Ecuadorian plaintiffs and the American lawyer Steven Donziger had to refile the case in 2011 in Ecuador wherein Chevron was ordered to cough up $9.5 billion as a penalty.
Zacks Rank #3 rated Chevron believed that the judgment in the Ecuador court was a result of fabricated evidence and fraudulence. U.S. District Judge Kaplan in Manhattan did not implement the judgment in 2014 on grounds of bribery. The New York-based 2nd U.S. Circuit Court of Appeals upheld Kaplan’s decision last year.
Donziger claimed that a federal court has exceeded its authority by letting Chevron use a U.S. racketeering law to block enforcement of Ecuador’s $9.5 billion award. However, the U.S. top judges turned down the appeal by the Donziger sustaining the prior U.S. court ruling. (Read: Chevron Spared of $9.5B Fine in Ecuador Case by US Court)
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 0.2%.
Next Week’s Outlook
Concerns over the valuations of tech stocks have dictated market movement to a significant extent this week. Oil prices have also played their part. However, it is likely that energy stocks will not have much of an impact in the days to come. Several analysts believe that investors have now learnt to delink crude price movement from the fortunes of stocks. Instead, they have come to recognize that the fall in crude prices is merely a result of higher production.
The absence of earnings and economic releases had led to tepid market moves on certain trading days. This is likely to change in the week ahead, during which, several crucial economic reports are scheduled to release. If these reports, which include crucial releases on GDP and home sales are mostly positive in nature, stocks could return to their winning ways in the days ahead.
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