The Dow ended the month on a winning note, rising during six of the last seven sessions. Setting multiple records over the month, the blue-chip index gained 5.4% over the last thirty days. To a large extent, these gains were largely attributable to Donald Trump’s surprise victory in the U.S. presidential elections. Bullish economic data, favorable news from overseas and expectations that GDP growth will continue were the other major reasons for gains made during the month.
Most of the index’s components notched up significant gains over this period with only a few ending in the red. While some felt the brunt of Trump’s proposed policies, others were affected by company specific factors. Overall, the absence of any major downsides helped markets surge over the month.
The index created eight records over November and breached the 19,000 mark for the first time ever on Nov 22. Markets surged after Donald Trump’s election on Nov 8, marking the beginning of a fierce rally for U.S. markets. Bonds fell out of favor as investors rushed to pick stocks which had been out of favor for some time now.
Financials were the toast of the month with easier regulations for the sector around the corner. The Utilities Select Sector SPDR ETF XLU slumped over the same period, losing 3.5% as safe havens fell out of favor.
Trump Pushes Stocks Higher
After an initial hiccup, investor warmed to the prospect of a Trump presidency and the Dow breached the 19,000 barrier for the first time in its history on Nov 22. The index has been on a bull run since the presidential election, registering the third consecutive week of gains as investors anticipate lower corporate taxation and regulations, along with higher infrastructure spending under a Trump administration.
The Dow has gained 9.8% year-to-date and is likely to end 2016 nearly 9.9% higher, marking its best since 2013. Last week, the index shot up nearly 300 points, highlighting an 800-point rise since the election. (Read: 4 Blue Chip Stocks to Buy as Trump Rally Rages On)
Bullish Domestic Data
Data released over the month suggests that the economy has strengthened and is likely to pick up pace during the last quarter. According to the Commerce Department’s second estimate, GDP increased by 3.2% in the third quarter. This is the fastest pace recorded in two years and the strongest year-over-year increase in nearly four.
Among other notable releases this month, construction spending rebounded, the ISM manufacturing and services indexes moved higher. Retail sales surpassed expectations to increase by 0.8%. Industrial production rebounded while durable orders notched up record gains. Housing starts and home sales depicting that the housing market is in fine fettle. Finally, Fed Chair Janet Yellen indicated that chances of a near term rate hike have increased significantly.
OPEC Seals Output Cut Deal, Third Quarter Earnings Encouraging
Concluding months of discussions and related speculation, OPEC sealed its first ever crude production deal on Nov 30. The group of oil producing countries agreed to cut production by 1.2 million barrels a day. The move aims to trim output to 32.5 million barrels per day. The likes of ExxonMobil Corp. XOM, Chevron Corp. CVX were the biggest gainers from this announcement. Both stocks have gained in excess of 4% over November as oil prices moved higher on expectations that the production bloc would finally agree on production controls.
Banks were the biggest gainers from the third quarter earnings season with earnings rising nearly 13% on a yearly basis. Total earnings of 476 S&P 500 members reported in the third quarter, are up 4% from the same period last year on 2.6% higher revenues, with 73.1% beating EPS estimates and 55.5% coming ahead of revenue estimates. (Read: Making Sense of Retail's Q3 Results)
4 Biggest Losers
Only five of the blue-chip indexes 30 stocks have ended the month in the red. This includes Apple Inc. AAPL which has ended the month0.9% lower. Of the rest, most of have been weighed down by company or sector specific woes while only one has been dragged lower by Trump’s victory.
Visa Inc. V has yet to recover from the blow it received post Trump’s surprise win. The stock suffered steady losses between Nov 9and Nov 14. It has made sporadic recoveries since then, but its last spurt of gains petered out on Nov 25 and it has steadily declined since then.
It is uncertain as to why the payment processor has been suffering. Revenues are garnered from transaction fees with card issuers such as JPMorgan JPM, which has gained more than 16% over the month. The Zacks Financial Services Transaction Market sector has also inched upward over the month. Possibly, Visa has been hit by stock specific factors such as a litigation overhang and high client incentives. However, the stock could soon recover since its projections for 2017 are encouraging. Also, it reaffirmed that the acquisition of Visa Europe will be accretive in 2017.
Visa has a Zacks Rank #3 (Hold). Its earnings estimate for the current year has declined by 0.1% over the last 30 days. The stock has declined 5.3% over last month.
The Procter & Gamble Company PG also declined after the results of the presidential election were announced and has fallen only marginally lower than the level reached on Nov 10 at the end of the month. The Zacks Soaps and Cleaning Preparations Market sector has also moved lower over the month. The entire consumer staples sector remains weighed down by global economic uncertainty.
However, Procter & Gamble has incurred comparatively lower losses. Productivity improvements and aggressive cost-saving efforts have consistently improved margins with the trend expected to continue going ahead.
Procter & Gamble has a Zacks Rank #3. Its earnings estimate for the current year has declined by 0.3% over the last 30 days. The stock has declined 5.1% over last month.
The Coca-Cola Company KO suffered a post election reverse from which it had recovered somewhat by Nov 28. The Zacks Soft Drinks Beverages Market has also been on a steady downtrend over the month.
Severe macroeconomic challenges in certain international markets and the stronger U.S. dollar have negatively impacted the cola giant in keeping with the fortunes of the broader sector. However, the stock itself has declined relatively lower. Higher prices for sodas and strong demand for water and sports drinks in North America are likely to push the stock higher going forward.
Cola’s earnings estimate for the current year has remained unchanged over the last 30 days. The stock has declined 4.2% over last month. The stock holds a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cisco Systems, Inc. CSCO was the sole tech stock which notched up gains post Trump’s victory. The company is likely to gain from Trump’s infrastructure push as well as his plans for offshore tax reserves repatriation. However, the stock declined on Nov 16 after releasing fiscal first-quarter results and has inched marginally lower since then. It has lost more than Zacks Computer Networks Market sector over last month.
Cisco’s disappointing earnings guidance is likely to remain an overhang on the stock. For the second-quarter of fiscal 2017, revenues (excluding the SP Video CPE Business) are expected to decline in the range of 2% to 4% on a year-over-year basis
Cisco has a Zacks Rank #4 (Sell). Its earnings estimate for the current year has declined by 2.8% over the last 30 days. The stock has declined 2.2% over last month.
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