The Dow experienced a strong week of gains, buoyed by the Fed’s decision to leave rates unchanged in September. Japan’s central bank’s decision to control the yield curve also provided a flip to stocks. Additionally, gains arising from developments related to major healthcare deals also lifted benchmarks. Economic data was mixed in nature while oil price movement continued to be volatile.
Last Week’s Performance
The Dow decreased 0.5% last Friday following declines in bank stocks on news that Deutsche Bank AG DB might have to pay a fine of $14 billion to settle a mortgage-backed securities case. Moreover, concerns over crude oversupply weighed on energy stocks, which also had a negative impact on key U.S. indexes.
Additionally, uncertainty remained over the timing of a rate hike ahead of the Fed policy meeting. Meanwhile, the CPI increased 0.2% in August, higher than the consensus estimate of 0.1%.
The Dow gained 0.2% over last week. Apple Inc’s AAPL shares jumped 11.4% for the week, its best rise since October 2011, after the tech-giant experienced strong demand for the new iPhone 7. Meanwhile, rate hike worries continue to inject uncertainty into the markets.
The Dow This Week
The index ended Monday mostly unchanged as investors refrained from making big bets ahead of the two-day policy meetings of the Fed and Bank of Japan (BOJ). Increase in oil prices and strong rise in home-builder confidence had a positive impact on key U.S. indexes. During the weekend, military conflicts in Libya weighed on its crude exports.
Moreover, Venezuelan President Nicolas Maduro said that both OPEC and non-OPEC countries are nearing a deal to control crude production. Both these factors boosted crude prices. According to the National Association of Home Builders and Wells Fargo, builder sentiment touched its highest level since Oct, 2015.
The index increased 0.1% on Tuesday ahead of the two-day policy meetings of the Fed and the BOJ. Inventors eagerly awaited any major policy decisions from the two central banks. Moreover, gains in healthcare stocks offset declines in energy stocks. Tobira Therapeutics, Inc’s TBRA shares jumped 720.9% after Allergan plc AGN decided to acquire the company for $1.7 billion.
Tobira develops products which are used to treat a common liver disease called nonalcoholic steatohepatitis, or NASH. Following this development, shares of Gilead Sciences Inc. GILD, which also develops drugs to treat NASH, rose 3.5%.
While acquisition news boosted the healthcare sector, crude oversupply concerns weighed on energy stocks. Oil prices closed mixed after Colonial Pipeline said that worries over supply disruptions from Gulf Coast refiners have faded as the gasoline line is expected to restart functioning.
The index gained 0.9% on Wednesday after the Fed kept key interest rates unchanged. The FOMC in its policy statement said that argument for a rate hike “has strengthened,” but the central bank waited for “further evidence of continued progress” before raising rates. Although, the lack of a rate hike in September boosted markets, some of its gains were pared following rising expectations of a rate hike in December.
The BOJ’s surprise move to control the yield curve also had a positive impact on both the global and domestic markets. Further, strong decline in crude inventories boosted oil prices, which in turn led gains for energy stocks.
Fed’s decision to keep interest rates unchanged continued to lead the Dow higher on Thursday and the blue-chip index gained 0.5%. However, Fed Chairwoman Janet Yellen’s comments fueled December rate hike chances even further. Meanwhile, sales of existing homes fell 0.9% in August while the Leading Indicators Index decreased 0.2% in September.
Components Moving the Index
Microsoft Corporation MSFT recently announced that by the end of 2016, it plans to buy back $40 billion worth of shares from the secondary market. The company also raised its dividend payout by 8%.
Although the company hasn’t announced an exact date for these developments, the stock repurchase program represents nearly 9% of Microsoft’s total market capitalization of $442.7 billion. Zacks Rank #3 (Hold) rated Microsoft shares were up almost 1% in after-hour trading on Sep 20. (Read: Microsoft to Repurchase Shares Worth $40B & Boost Dividend)
General Electric Company GE recently received a $1.9 billion contract to power the Hinkley Point C nuclear power station in the U.K. after British Prime Minister Theresa May approved the project following a six-week review. The $24 billion (£18.17 billion) project is the first of its kind in the country in decades and will replace the older coal-fired plants.
Zacks Rank #3 rated General Electric will build two 1,770-megawatt Arabelle steam turbines and generators for the project, which would be sufficient to power 6 million households in the country, meeting about 7% of the total power generation needs for 60 years. (Read: GE Wins Contract to Power Hinkley Point Nuclear Project)
Meanwhile, GE’s unit GE Transportation, recently launched its first ever European digital pilot with DB Cargo, Europe’s largest rail operator. Per the deal, Deutsche Bahn will leverage GE Transportation’s RailConnect 360 Asset Performance Management Solution, enabling locomotive health status updates to enhance efficiency and spot repair issues to avoid any inconvenience due to system failure. (Read: GE's Unit Unveils its First EU Digital Pilot RailConnect 360)
In a separate development, GE has recently completed the divesture of the majority of GE Capital’s restaurant franchise financing assets in the U.S. The assets were sold to three separate buyers. (Read: GE Completes Divesture of Restaurant Finance Assets in US)
International Business Machines Corporation IBM recently launched new software and hardware to make it easier for organizations to switch to hybrid-computing technology, which makes use of both public cloud as well as an on-premise computing setup.
Zacks Rank #4 (Sell) rated IBM’s new cloud offerings include power systems for the cloud. These include the Power E880C and Power E870C servers that work with OpenStack, a software for automation and cloud management. Additionally, z Systems Operational Insights comprises software as a service (SaaS) offering from IBM that enables the user to analyze cloud operations in order to achieve better performance from applications.
Another new cloud related software release from IBM is IBM Spectrum Copy Data Management and Protect. IBM claims that the software is capable of managing multitudinous data sets at the same time. (Read: IBM Unveils Hybrid Cloud Offerings to Boost Businesses)
ExxonMobil Corporation’s XOM shares gained 0.92% on the NYSE on Sep 21, after its $2.5 billion bid to acquire Singapore's InterOil Corp. (IOC) was approved by the shareholders of the latter. The merger, which required approval by two-thirds of InterOil shareholders, saw more than 80% of the shareholders vote in favor of the proposed transaction.
The transaction, which is expected to close by the end of September, will result in InterOil stockholders receiving ExxonMobil shares worth $45 for each InterOil share held. Additionally, ExxonMobil will pay $0.90 per million cubic feet equivalent (mcfe) for resources of over 6.2 trillion cubic feet in the Elk-Antelope gas field. The stock holds a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pfizer Inc. PFE came up with a couple of announcements related to its breast cancer drug, Ibrance and PF-06438179, a biosimilar version of Johnson & Johnson’s (JNJ) blockbuster drug, Remicade (infliximab).
Zacks Rank #3 rated Pfizer announced that the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP) has rendered a positive opinion in favor of the approval of the company’s marketing authorization for Ibrance. Ibrance is under review in the EU for the treatment of women with hormone receptor-positive, human epidermal growth factor receptor 2-negative (HR+/HER2-) locally advanced or metastatic breast cancer.
Pfizer also announced positive top-line data from a phase III confirmatory study – REFLECTIONS B537-02 on PF-06438179 (infliximab-Pfizer). The study hit the primary endpoint and showed that PF-06438179 demonstrated similar efficacy to Remicade as measured by the American College of Rheumatology-20 response at Week 14 of study treatment. (Read: Pfizer (PFE) Breast Cancer Drug Ibrance Wins CHMP Backing)
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 1.1%.
Last 5 Day’s Performance
Next Week’s Outlook
Investors have received much needed respite from the Fed’s decision of not raising rates in September. However, the Fed Chair has strongly indicated that there is a strong possibility that rates will be hiked in December. Meanwhile, domestic economic data, which is the Fed’s compass on the policy count remains mixed if not lackluster. Next week features several major economic releases, including data on consumer confidence, housing, durable orders, personal expenditure and the all important GDP report. The nature of these reports is likely to play a strong role in the movement of markets in the days ahead.
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