The Dow snapped a record streak of wins to traverse a turbulent week. Trade-war related concerns continued to weigh on investors with President Trump expressing doubts over the success of upcoming negotiations with China. Additionally, the spike in 10-year Treasury yield also spooked markets, sparking off fresh inflationary concerns. Such fears were also stoked by encouraging retail sales numbers.
Last Week’s Performance
The Dow increased 0.4% on last Friday, marking its seventh straight session of gains. This was the blue-chip index’s longest winning streak since Nov. 8, 2017. Notably, healthcare stocks were down initially following the news that President Trump unveiled his new healthcare plan.
However, the broad market recovered later after the announcement was not followed up by stringent measures. Low inflation data and weak dollar also boosted investors’ confidence in equities.
The index gained 2.3% over last week. This was the blue-chip index’s largest weekly gain since March. Energy and tech stocks were major drivers of the U.S. stock markets. Oil prices first rallied on last Wednesday in the wake of United States’ decision to exit the Iran nuclear deal. This increase fueled a rally in energy stocks once again.
Meanwhile, Apple Inc.’s AAPL shares jumped after celebrity investor Warren Buffett’s Berkshire Hathaway BRK.B announced that it had bought 70 million shares of Apple in the first quarter. Consequently, shares of Apple rose to an all-time high $190.37.
The Dow This Week
The index gained 0.3% on Monday, increasing for the eighth consecutive session. This marked the blue-chip index’s longest winning streak since Sep. 20, 2017. Stocks gained on the first trading day of the week as trade fears subsided. President Donald Trump tweeted on Sunday that he was considering relaxing stringent sanctions that have been imposed on Chinese tech giant ZTE Corp. last month.
The index lost 0.8% on Tuesday after the yield on the 10-year U.S. Treasury Note hit a seven-year high. This, in turn, occurred after retail sales increased over two consecutive months, raising inflationary fears. Moreover, U.S. Commerce Secretary Wilbur Ross and U.S. Ambassador to China Terry Branstad commented that trade tensions between the United States and China were far from over.
The index gained 0.3% on Wednesday reversing previous day’s broad-based decline. In particular, retail stocks gained on strong sales data of April and Macy’s Inc.’s M first-quarter earnings report. Moreover, Russell 2000, the benchmark index for small-cap stocks hits an all-time high. Overall, most stocks closed in the green as investors appeared to ignore concerns regarding rising yield on the U.S. government bonds and geopolitical tensions.
The index lost 0.2% on Thursday after President Trump commented that trade talks between the United States and China may not be successful. Trump stated: “Will that be successful? I tend to doubt it,” ahead of the second round of trade talks between the two countries. Meanwhile, a decline in technology shares negated gains made by energy stocks.
Components Moving the Index
The Home Depot, Inc. HD posted fiscal first-quarter adjusted earnings of $2.08 per share, which escalated 24.6% from $1.67 recorded in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $2.06. Home Depot has a Zacks Rank #3 (Hold).
Net sales grew 4.4% to $24,947 million from $23,887 million in the year-ago quarter. However, the top line lagged the Zacks Consensus Estimate of $25,202 million.
Including the impacts of the adoption of ASU No. 2014-09, which pertains to revenue recognition, Home Depot expects sales growth of nearly 6.7% in fiscal 2018, accompanied by 5% increase in comps. Further, the company estimates earnings per share for fiscal 2018 to be up nearly 28% to $9.31. (Read: Home Depot’s Q1 Earnings Beat Estimates, Sales Lag)
Walmart Inc.’s WMT first-quarter fiscal 2019 earnings of $1.14 per share came ahead of the Zacks Consensus Estimate of $1.12 and surged 14% year over year. Including one-time items, earnings slumped 28% to 72 cents per share. Walmart has a Zacks Rank #3.
Total revenues advanced 4.4% to $122.7 billion that surpassed the Zacks Consensus Estimate of nearly over $120 billion. On a currency-neutral basis, total revenues advanced 2.7% to $120.7 billion.
Consolidated operating income slipped 1.6% to approximately $5.2 billion, whereas the operating income margin contracted 200 basis points to 4.2%. On a constant currency basis, operating income declined 4% to roughly $5 billion. (Read: Walmart’s Q1 Earnings & Sales Jump Y/Y, Online Sales Up)
Cisco Systems CSCO delivered third-quarter fiscal 2018 non-GAAP earnings of 66 cents per share coming ahead of the Zacks Consensus Estimate by a penny. Further, the figure rose 10% from the year-ago quarter.
Revenues increased 4.4% year over year to $12.463 billion and marginally surpassed the Zacks Consensus Estimate of $12.421 billion. For fourth-quarter fiscal 2018, revenues are expected to grow 4-6% on a year-over-year basis. The Zacks Consensus Estimate for revenues is pegged at $12.71 billion, representing year-over-year growth of 4.8%.
Non-GAAP earnings are anticipated between 68 cents and 70 cents per share. The Zacks Consensus Estimate for earnings is at 68 cents, translating to year-over-year growth of 1.5%. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pfizer Inc. PFE announced that the FDA has granted approval to Retacrit, a biosimilar version of two blockbuster drugs – Amgen Inc.’s AMGN Epogen and Johnson & Johnson’s JNJ Procrit. Zacks Rank #3 Pfizer already markets the biosimilar in Europe.
Retracrit is indicated for the treatment of anemia due to chronic kidney disease, anemia due to Zidovudine in HIV-infected patients and anemia due to the effects of concomitant myelosuppressive chemotherapy (anemia post chemotherapy). The drug is also approved for the reduction of allogeneic red blood cell (RBC) transfusions in patients undergoing elective, non-cardiac, nonvascular surgery.
Retacrit becomes the first biosimilar erythropoiesis-stimulating agent approved in the United States. Procrit generated sales of $972 million while Epogen’s sales were $1.1 billion in 2017. The sales numbers suggest bright prospects for Retacrit as it will be a lower cost alternative treatment option for patients using Procrit/Epogen. (Read: Pfizer Gets FDA Nod for Amgen, J&J’s Anemia Drug Biosimilar)
General Electric Company’s GE Power Services business recently entered into an agreement with Saudi Cement to upgrade the latter’s three GE 6B gas turbines at Hofuf plant, based in the Kingdom of Saudi Arabia. General Electric has a Zacks Rank #3.
Per the deal, GE Power will upgrade these turbines by installing its Advanced Gas Path (AGP) solution, which would enable Saudi Cement to boost power output and efficiency.
Notably, this deal marks the first installation of GE Power’s AGP technology solution to boost power generation productivity in a cement industry globally. Currently, it will enable Saudi Cement to boost power output by a total of up to 16.9% across the three turbines. (Read: General Electric to Upgrade Saudi Cement’s GE 6B Gas Turbines)
JPMorgan Chase & Co. JPM wants to set up a joint-venture brokerage in China. For this, the company is seeking approval from the securities regulator in the country. JPMorgan has a Zacks Rank #3.
Gao Li, a spokeswoman for the China Securities Regulatory Commission, recently stated that J.P. Morgan Broking (Hong Kong) Ltd., a unit of JPMorgan, submitted an application to acquire 51% stake in a Chinese securities venture. Li also informed that the application will be efficiently reviewed by the regulator.
This move by the bank comes after China pledged to open its financial markets for foreign investors. In April, the Chinese authorities released guidelines, giving permission to foreign companies to own a maximum 51% of their local securities joint ventures. (Read: JPMorgan Seeks China’s Approval for a Joint Venture)
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 declined 0.9%.
Next Week’s Outlook
Markets have endured another volatile week marked by trade and inflation related concerns. Even encouraging economic reports such as strong retail sales numbers have only served to fuel inflationary fears.
Gains have only come when investors have chosen to ignore these concerns. Next week features crucial economic data on housing and durable orders. Encouraging news on this front could help to propel stocks higher in the days ahead.
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Pfizer Inc. (PFE) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
The Home Depot, Inc. (HD) : Free Stock Analysis Report
Apple Inc. (AAPL) : Free Stock Analysis Report
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Berkshire Hathaway Inc. (BRK.B) : Free Stock Analysis Report
Amgen Inc. (AMGN) : Free Stock Analysis Report
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Macy’s, Inc. (M) : Free Stock Analysis Report
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