The Dow experienced a volatile holiday-shortened week, boosted primarily by record gains on Tuesday. The blue-chip index gained significantly on Tuesday after weak Chinese trade data raised hopes that further stimulus measures will be announced to boost its fragile economy.
The Dow moved lower on Wednesday after concerns about a potential interest rate hike following record job openings and slump in oil prices offset China’s stimulus efforts. The blue-chip index moved higher on Thursday amid rise in oil prices and uncertainty about the timing of a rate hike. The Dow has gained 1.4% during the first three trading days.
Last Week’s Performance
Last Friday, the Dow declined 1.7% after the highly anticipated jobs report failed to provide clarity on the timing of rate hike. The U.S. economy created a total of 173,000 jobs in August, less than the consensus estimate of 216,000. This also marked the slowest increase in job creations since March.
However, the unemployment rate fell to 5.1% in August, its lowest level since Apr 2008. The unemployment rate was within the Fed’s goal of full employment; within the range of 5% to 5.2%. The Dow posted a triple digit loss, of 272.38 points, and also notched up its second worst week for the year.
For the week, the Dow slumped 3.3%. Benchmarks ended in negative territory for the week after Friday’s mixed employment data failed to give any direction on the timing of rate hike. Benchmarks also suffered losses after China’s manufacturing data intensified global economic concerns.
Adding to fears of a global slowdown were comments from Christine Lagarde, head of the International Monetary Fund. She said that slow recovery in advanced countries and further slowdown in emerging economies were cited to be the reasons behind this weak global economic growth.
Among the positives were Mario Draghi’s dovish comments. He had said the European Central Bank is prepared to “fully implement” its asset buyback program until Sep 2016 “or beyond,” if required.
The Dow This Week
The blue-chip index gained 2.4% or 390.30 points on Tuesday after weak Chinese trade data raised hopes that further stimulus measures will be announced to boost its fragile economy. This was the Dow’s largest percentage and point gains since Aug 26.
China’s trade surplus increased in August to $60.2 billion from $43.03 billion in July. Declines in both exports and imports resulted in a significant trade gap. The world’s second largest economy saw its exports drop 5.5% in August from a year earlier, while its imports plunged 13.8% from year ago levels. China’s exports declined for the second month in a row in August, while its imports fell for the tenth straight month.
Dismal trade data fueled hopes that China may implement additional stimulus measures to recover its flagging economy, which eventually boosted the US broader markets. Separately, Germany posted record exports growth.
The Dow lost 1.5% on Wednesday after concerns about a potential interest rate hike following record job openings and slump in oil prices offset China’s stimulus efforts. According to the Labor Department, job openings climbed to 5.8 million in July, a new series high. Additionally, the rate of job openings went up to 3.9% in July, increasing from the 3.6% pace experienced in the preceding three months.
This report heightened uncertainty about when the Federal Reserve will hike rates. Amid this uncertainty, oil prices declined, dragging energy shares down. Oil prices fell after the Energy Information Administration (EIA) trimmed its WTI crude oil price projections for 2015 and 2016.
These developments overshadowed Chinese government’s reassurances that it would work toward boosting its sluggish economy. China’s Ministry of Finance said it will roll out “stronger proactive fiscal policy” to stimulate economic growth.
Moreover, decline in Apple Inc.’s AAPL shares also weighed on the broader markets. The company unveiled a new version of Apple TV, new set of iPhones and business-oriented iPad Pro. However, shares of Apple fell 1.9% after these new products failed to impress investors.
The blue-chip index gained 0.5% on Thursday amid rise in oil prices and uncertainty about the timing of a rate hike. Rise in oil prices boosted the overall market. Oil prices rebounded on Thursday following expectations of further decline in oil production levels, which offset the more-than-anticipated increase in supply of weekly domestic crude oil.
Increase in oil prices helped energy shares end in the green. Dow components Exxon Mobil Corporation XOM and Chevron Corporation CVX gained 0.7% and 0.9%, respectively. However, Thursday’s economic data came in mixed, which failed to clear investors’ doubt about the timing of the rate hike.
Initial claims decreased 6,000 for the week ending Sep 5 to 275,000, in line with the consensus estimate. However, the 4-week moving average increased 500 from previous week’s level to 275,750. Meanwhile, the prices U.S pays for imported goods declined by 1.8% last month, its biggest decline since the beginning of this year.
Components Moving the Index
General Electric Company GE has received a green signal from the EU (European Union) for its €8.5 billion ($9.5 billion) bid to acquire French peer Alstom’s energy assets.
The final major roadblock to the merger — approval from U.S. antitrust authorities — has also been received. Minutes after the E.U. approval, the U.S. Justice Department also gave its nod to the deal.
Earlier this year, the European Commission raised anti-trust concerns, opining that the deal would hurt competition in the market for turbines, which are used to generate electricity from gas-fired power stations.
The merger would also result in GE competing with just two major companies: Japan’s Mitsubishi Hitachi Power Systems and Germany’s Siemens, with Italy’s Ansaldo Energia being a niche player. In order to address EU concerns, GE has promised to sell certain assets to Italian competitor Ansaldo Energia.
Boeing Co BA opened a new commercial spaceship assembly plant at Cape Canaveral, FL. This will prepare its newly named CST-100 Starliner spacecraft. The spacecraft will be prepared for flight at a hangar that was used by NASA for its space shuttles.
The aerospace giant’s new Starliner capsule will be used by NASA to fly crews to the International Space Station (“ISS”). The spaceship will debut its test flight in 2017.
Starliners will take off from the nearby Cape Canaveral Air Force Station aboard Atlas 5 rockets. These rockets are built and flown by United Launch Alliance, a collaboration between Lockheed Martin Corporation LMT and Boeing.
Meanwhile, Boeing’s planning to increase the production of its 767 aircraft by 25% in 2017 in order to complete the order of 50 planes from FedEx Corp. FDX. The company announced that it intends to increase the rate of production from the fourth quarter of 2017, from 2 to 2.5 per month. Currently, its production rate stands at 1.5 a month, which is expected to rise to 2 per month in the first quarter of 2016.
The aerospace giant has won a total of 48 orders for the 767 aircraft through Sep 1, 2015, all from FedEx in July this year. The latest order for 50 767 freighters is the largest single order for the aircraft in its history.
Verizon Communications Inc. VZ will start field trials for its upcoming 5G wireless network with its partners in 2016. Verizon plans to test 5G technology in Waltham, MA and San Francisco, CA in the first phase.
Although several industry researchers have predicted that a full-fledged 5G network deployment will not start until 2020, Verizon expects some level of commercial deployment of 5G networks in 2017. Industry researchers expect the Asia-Pacific region to spearhead in the global deployment of 5G wireless networks.
Microsoft Corporation MSFT has acquired Israeli cloud cyber security firm Adallom. The deal is likely to close this week.
Adallom, a Tel Aviv-based startup, develops a technology that protects misuse of online Software as a Service (SaaS) systems within organizations. The remote access is managed by Adallom's control system, which logs and informs any suspicious activity; thereby protecting cloud-based data for enterprise customers.
Additionally, Microsoft recently collaborated with Dell and Hewlett-Packard HPQ to sell its Surface Pro tablet to enterprises. In a blog post, Microsoft stated that starting October, Dell’s sales team will sell Surface Pro and related accessories to enterprises. In due course, the devices will be made available on Dell’s website for the enterprise clients.
JPMorgan Chase & Co. JPM has exited open outcry trading on the London Metal Exchange (“LME”). JPMorgan’s transfer from Category 1 to Category 2 membership, which permits only electronic and telephone trading, was announced by the exchange in a members' notice. The company expects a smooth transition without any impact on its transactions.
The Goldman Sachs Group Inc. GS won the dismissal of a lawsuit under which the plaintiffs claimed Goldman deceptively sold the sub-prime mortgage-linked securities that gradually failed. In addition to that, it was alleged that it misrepresented the value of instrument by providing materially misleading statements.
Established in 2007, hedge fund Dodona filed a lawsuit against Goldman in the federal court in New York over Hudson Mezzanine Funding 2006-1 and 2006-2 collateralized debt obligations (CDOs). The securities offered to the investors, were residential mortgage-backed securities. According to the judge, plaintiffs failed to prove that such securities were structured by Goldman, which led to the dismissal of the case.
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 lost 1.9%.
| Ticker | Last 5 Day’s Performance | 6-Month Performance |
| GS | -0.9% | +1.8% |
| MMM | -2.4% | -13.2% |
| IBM | -1.3% | -7.4% |
| BA | +0.3% | -12.4% |
| AAPL | -0.6% | -9.6% |
| UNH | -0.4% | +3.8% |
| UTX | -1.8% | -22.2% |
| HD | -2.6% | +1.7% |
| TRV | -1.3% | -5.4% |
| CVX | -6% | -26.5% |
Next Week’s Outlook
Oil prices and China’s stimulus dominated a short trading week which experienced both spikes and slumps. Volatility in oil prices seems to be mirroring markets behavior and their movement is guiding stocks on most days. This is likely to be the case going forward as well until oil prices resume a secular trend.
Meanwhile, China’s stimulus measures have provided much needed impetus to markets which is suffering from the uncertainty over a possible rate hike. The effect of such concerns is being aggravated by conflicting economic reports.
Next week features several important economic reports such as retail sales, industrial production and CPI. However, it is likely that rate hike fears will continue to dominate proceedings until the Fed ultimately reveals its cards next Thursday.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
CHEVRON CORP (CVX): Free Stock Analysis Report
BOEING CO (BA): Free Stock Analysis Report
APPLE INC (AAPL): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
GENL ELECTRIC (GE): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
