Strong Earnings Drive Dow Jones Industrial Average Above 22K
Tom Reese
From Chris Kimble: It’s been a while since gold bulls were able to celebrate something more than a swing trade. Will 2018 bring gold bulls the breakout they’ve been patiently waiting nearly 5 years for? Since the 2011 top, there…
From Zacks: The Dow breached the psychological 22,000 barrier during a week of strong gains. Strong earnings performances were primarily responsible for the index’s record run. The index also received a boost from falling sovereign bond yields on Monday. On Tuesday, the index achieved its 31st record finish for the year.
Ultimately, the index breached the 22,000 barrier on Wednesday. The index gained again on Thursday despite suffering minor losses earlier in the session after the Russia investigation led by Robert Mueller intensified.
Last Week’s Performance
The Dow gained 0.2% on Friday to close at a record level. The blue-chip index was boosted by splendid earnings from Chevron Corp. (CVX – Free Report) . This enabled the Dow to recover from the 40 point decline it suffered earlier in the session. On the other hand, Exxon Mobil Corp. (XOM – Free Report) posted a dismal earnings performance, losing 1.5%. Amazon.com, Inc.’s (AMZN – Free Report) disappointing second quarter results weighed on other benchmarks.
The index gained 1.2% over last week. The Dow’s great run was supported by excellent earnings for the week. Index components which reported better-than-expected earnings during this period are McDonald’s Corp. MCD, The Boeing Company (BA – Free Report) , Verizon Communications Inc. (VZ – Free Report) and Caterpillar Inc. (CAT – Free Report)
The DowThisWeek
The index gained 0.3% on Monday to finish at yet another all-time high, buoyed by a rally in shares of The Goldman Sachs Group, Inc. (GS – Free Report) , The Home Depot, Inc. (HD – Free Report) and Boeing. Falling sovereign bond yields also helped the index touch a record level during this trading session. Over last month, the Dow gained 2.5%, powered by the excellent earnings results released during this period.
On Tuesday, the index increased by 0.3% once again. The Dow registered yet another record high on Tuesday, stopping just short of attaining the psychological milestone of 22,000. This was its 31st record close that the blue-chip index breached this year.
This marked the Dow’s sixth straight session of gains and second straight record finish. 3M Company (MMM – Free Report) and Goldman Sachs contributed to most of its gains on this occasion. Rising bank shares and splendid earnings from JPMorgan Chase & Co. (JPM – Free Report) have also been instrumental for Dow’s stellar showing.
Ultimately, the index breached the 22,000 barrier on Wednesday. The index gained 0.2%, marking its seventh consecutive daily increase. This historic benchmark was achieved within 107 trading days of Dow hitting the 21,000 mark.
This stellar showing was a result of a surge in the shares of Apple Inc. (AAPL – Free Report) after the tech behemoth posted outstanding earnings results. Broadly encouraging economic conditions also drove the index past the psychological milestone.
The index gained 0.1% on Thursday, index registering its 33rd record for 2017. The index closed above the 22,000 threshold yet again on a day marked by losses for other benchmarks. Further, the blue-chip index notched its eighth straight daily rise, buoyed by an increase in shares of Pfizer, Inc. (PFE – Free Report) . Early in the session, the blue-chip index had suffered minor losses after the Russia investigation led by Robert Mueller intensified.
Components Moving the Index
Apple reported spectacular results for third-quarter fiscal 2017, driven by the impressive Service segment performance. Earnings of $1.67 per share and revenues of $45.4 billion surpassed the Zacks Consensus Estimate of $1.57 and $44.7 billion, respectively. On a year-over-year basis, earnings grew 17.6% and revenues increased 7.2%. Apple has a Zacks Rank #3.
Total iPhone unit sales came in at about 41 million, up 2% year over year. Revenues from iPhone grew 3% from the year-ago quarter to $24.8 billion (54.7% of total revenue). Services – including revenues from Internet Services, App store, Apple Music, AppleCare, Apple Pay, and licensing and other services – surged 22% year over year to nearly $7.3 billion.
For fourth-quarter fiscal 2017, the company forecasts revenues in a range of $49-$52 billion compared with $46.9 billion reported in the year-ago quarter when it released iPhone 7 and 7 Plus. The Zacks Consensus Estimate is pegged at $49.2 billon. (Read: Apple Q3 Earnings & Revenues Beat Estimates, Stock Up)
Pfizer, Inc. (PFE – Free Report) reported second-quarter 2017 adjusted earnings per share of 67 cents, which beat the Zacks Consensus Estimate of 65 cents by 3.1%. Earnings also rose 5% year over year.
However, the pharma heavyweight delivered revenues of $12.90 billion, which fell short of the Zacks Consensus Estimate of $13.02 billion. Again, revenues declined 2% from the year-ago period due to currency headwinds and divestiture of Hospira infusion systems business. In Feb 2017, Zacks Rank #3 rated Pfizer divested its Hospira infusion systems (HIS) business to ICU Medical.
While Pfizer raised the lower end of its adjusted earnings guidance, it retained the revenue expectations for the year. Revenues are expected in the range of $52 billion to $54 billion. Adjusted earnings per share are expected in the range of $2.54 – $2.60 compared with $2.50-$2.60 expected previously. Higher than previously anticipated royalty income from certain products and lower interest cost led to the increase in the lower end of the profit outlook. (Read: Pfizer Surpasses Q2 Earnings Estimates, Misses Sales)
Intel Corp INTC reported second-quarter 2017 non-GAAP earnings of 72 cents per share, which surged 22% from the year-ago quarter but declined 8.9% sequentially. Earnings per share (EPS) beat the Zacks Consensus Estimate by 4 cents.
The strong year-over-year earnings growth was driven by 9.1% increase in revenues, which totaled $14.76 billion and beat the Zacks Consensus Estimate of $14.41 billion. Revenues were almost flat sequentially. After adjusting for the Intel Security Group (ISecG) transaction, revenues grew 14%.
Intel guided third-quarter 2017 revenues of around $15.7 billion (+/-$500 million), almost flat sequentially and up 3% year over year excluding Intel Security Group business. The projected figure is better than the Zacks Consensus Estimate of $15.35 billion.
For fiscal 2017, management expects revenues of almost $61.3 billion (+/- $500 million), better than the Zacks Consensus Estimate of $60.19 billion and up $1.3 billion from previous expectation. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Chevron reported strong second-quarter results amid the recovery in commodity prices, production gains and the success of its cost savings initiatives. The company reported earnings per share (excluding special items) of 91 cents, higher than the Zacks Consensus Estimate of 89 cents and the year-ago profit of 48 cents. Quarterly revenue of $34,480 million surpassed the Zacks Consensus Estimate of $31,182 million and increased 18% year over year.
Zacks Rank #3-rated Chevron’s total production of crude oil and natural gas increased 10% compared with last year’s corresponding period to 2,780 thousand oil-equivalent barrels per day (MBOE/d). Chevron’s downstream segment achieved earnings of $1,195 million, 6% less than the profit of $1,278 million last year. The fall primarily underlined the absence of net gains from asset sales. (Read: Chevron Q2 Earnings Beat on Oil Rally, Output Rise)
Exxon Mobil posted an earnings miss in second-quarter 2017 owing to a decline in liquid volumes and lower margin from chemical businesses. The company reported earnings of 78 cents per share, which missed the Zacks Consensus Estimate of 83 cents. The bottom line improved from the year-ago quarter level of 41 cents. Exxon Mobil has Zacks Rank #4 (Sell).
Total revenue in the quarter increased to $62,876 million from $57,694 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $61,157 million.
Quarterly earnings at the upstream segment were $1.2 billion, up $890 million from the April-to-June quarter of 2016. The downstream segment recorded profits of $1.4 billion. The reported figure is $560 million higher than the April-June quarter of 2016. (Read: Exxon Mobil Q2 Earnings Miss on Lower Volumes)
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 1.2%.
Ticker
Last 5 Day’s Performance
6-Month Performance
MMM
+3.3%
+18.6%
GS
+0.9%
-6.7%
IBM
+0.6%
-17.6%
HD
+3.4%
+10.5%
BA
-1.1%
+45.3%
UNH
+2.6%
+21.3%
MCD
-1.3%
+24.3%
TRV
+2.3%
+10.1%
JNJ
+2.1%
+17.6%
AAPL
-2.7%
+25.1%
Next Week’s Outlook
Through the week, the Dow has managed to register strong gains despite losses for the broader markets. The index has emerged unscathed primarily due to strong earnings performances from the bulk of its components. With Dow earnings releases coming to an end, the focus will shift toward economic data and political developments. Investors will now increasingly focus on reports such as Friday’s jobs data release to determine the direction of markets in the days ahead.
The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) closed at $220.57 on Friday, up $0.51 (+0.23%). Year-to-date, DIA has gained 12.95%, versus a 11.71% rise in the benchmark S&P 500 index during the same period.
