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Dow 30 Stock Roundup: Boeing Wins $510M Contracts, GE Sheds Key Units

The Dow moved lower this week due to heightened concerns about global growth and declining oil prices. The index decreased on Monday following a decline in oil prices which curbed gains in healthcare stocks. The index moved lower again on Tuesday following concerns over weak global economic growth. The index increased on Wednesday following gains in biotech and energy stocks. The index suffered losses on Thursday following heightened concerns regarding weak global growth and another decline in crude prices. The Dow has lost 0.3% over the first four trading days of the week.

Last Week’s Performance

The index increased 0.6% last Friday following encouraging data on manufacturing and jobs. The ISM manufacturing index rose above 50, indicating expansion in activity for the first time in the last six months. The index increased from 49.5% in February to 51.8% in March, higher than the consensus estimate of 50.8%.

Despite favorable economic reports, rate hike chances were ruled out following Fed Chair Janet Yellen’s dovish comments last week.  Additionally, the U.S. economy generated a total of 215,000 jobs in March, beating the consensus estimate of 203,000. However, the unemployment rate went up from 4.9% in February to 5% in March.

Further, in contrast to February’s 0.1% decline, average hourly earnings gained 0.3% in March to $25.39 per hour, and experienced a 2.5% rise from the year-ago figure. These reports helped offset losses from oil price declines. Oil prices fell on Friday after Saudi Arabia’s crown prince Mohammed bin Salman said Saudi Arabia might agree to a production freeze only "if all countries” including Iran “agree to freeze production."

The Dow registered its best gains in two weeks, moving up 1.6%. Benchmarks ended the week in the green after Yellen indicated that the Fed will take a cautious stance before hiking interest rates. Gains in technology, consumer staples and consumer discretionary stocks boosted the market. Meanwhile, economic data on personal spending, pending home sales and consumer confidence were encouraging. Weak inflation data reduced possibilities of immediate Fed rate hikes.

The Dow This Week

The index decreased 0.3% on Monday following a decline in oil prices which curbed gains in healthcare stocks. Oil prices hit their lowest level in a month after Saudi Arabia’s deputy crown prince Mohammed bin Salman said the country will agree to a production freeze only if Iran agrees to do the same. Additionally, on Sunday, Iran’s oil minister Bijan Zanganeh said the country’s crude exports increased by 250,000 barrels per day (bpd) in March.

Jump in Iran’s crude exports and prince Salman’s comments raised worries over the possibility of a production control agreement between OPEC and non-OPEC members in a meeting to be held in Doha this month.

Meanwhile, copper prices slumped following worries over a fall in Chinese demand and sooner-than-expected Fed rate hike chances due to encouraging job reports. Copper prices fell for the seventh consecutive trading day, its lowest level since Mar 3. Decline in copper prices dragged material stocks downward.

The index declined 0.8% on Tuesday following concerns over weak global economic growth. The Dow fell three-digit points for the first time since Mar 8 and registered the biggest one-day decline since Feb 23. Both the European and Japanese stock indexes fell following weaker-than-expected economic data.

According to Markit, Europe’s final composite March PMI for output came in at 53.1, lower than the flash estimate of 53.7, whereas PMI for services came in at 53.1, lower than the flash estimate of 54. Moreover, Nikkei Japan Services PMI declined from 51.2 in February to 50 in March.

Disappointing output and services data had a negative impact on key indexes in both Europe and Japan. Germany’s DAX slumped 2.6%, its biggest loss since Feb 24, while the Stoxx Europe 600 declined 1.9% to its lowest settlement since Feb 25. Also, Japan’s Nikkei Stock Average declined 2.4%.

Additionally, lackluster earnings outlook for the first quarter dampened investor sentiment. Total first quarter earnings for the S&P 500 index are expected to be down 10.3% from the same period last year.

The index increased more than 0.6% on Wednesday following gains in biotech and energy stocks. Healthcare stocks rose following strong gains in Pfizer Inc. PFE and Allergan plc AGN. Despite calling off the planned merger between the two pharmaceutical giants, shares of Pfizer and Allergan jumped 5% and 3.5%, respectively.

Moreover, oil prices increased following a decline in crude inventories. The U.S. Energy Information Administration (EIA) reported that the U.S. commercial crude oil inventories fell 4.9 million barrels to 529.9 million for the week ended Apr 1.

Further, the minutes on Federal Reserve’s March two-day policy meeting released on Wednesday indicated that Fed officials shared diverse views regarding rate hike chances. Some Fed officials believed that “a cautious approach to raising rates would be prudent.”

The index lost 1% on Thursday following heightened concerns regarding weak global growth and another decline in crude prices. The yen continued to rise despite Bank of Japan’s (BOJ) introduction of negative interest rates earlier this year. This intensified worries that economic stimulus measures, which include negative interest rate, taken by BOJ in order to boost the economy failed to have any significant impact.

Additionally, oil prices snapped the two-day winning stretch following an increase in Iraq’s crude exports. Iraq’s crude exports in April were 3.494 million bpd, more than March’s average of 3.286 million bpd. Also, Iran’s Foreign Minister Javad Zarif said that the country “wants to regain its place on the oil market.” It is being speculated that Iran may participate in the production freeze meeting this month but will freeze production only when it reaches its pre-sanction level of 3 million bpd.

Oil prices were also negatively impacted by reports that crude inventories in the delivery hub of Cushing, OK have increased by 255,804 barrels for the week ending Apr 5.

Components Moving the Index

The Boeing Co. BA secured two major contracts, worth $510.3 million in total, from the U.S. Department of Defense (DoD) on Apr 5.The larger of the two, worth $275 million, is allotted to conduct research and engineer technology that increases ground-based space capabilities. The latest contract is expected to boost scientific knowledge of these capabilities and apply the results to "achieve Air Force and national goals." The contract will run through Nov 3, 2020.

Boeing also received a $235.3 million modification contract for the procurement of long-lead items for the manufacture and delivery of 11 Lot 8 full-rate production IV P-8A aircraft for the U.S. Navy. The contract will run through Jan 2017 and most of the work will be carried out in Seattle, WA (82.6%); while the rest in Baltimore, MD; Greenlawn, NY; North Amityville, NY and Cambridge, United Kingdom.

General Electric Company GE announced that it has sold its lending and leasing business in Japan to Sumitomo Mitsui Finance and Leasing Company, Limited (SMFL). Alongside, General Electric also completed the sale of its lending and leasing business in Mexico to Linzor Capital Partners. Together these two transactions represent approximately $6.2 billion in ending net investment (ENI).

Additionally, General Electric announced the sale of GE Capital’s majority shares in Bank BPH’s Core Bank to Alior Bank. The transaction represents assets totaling approximately $2.1 billion in ENI. This transaction is expected to reap approximately $0.2 billion of capital for the company.

International Business Machines Corporation IBM recently revealed that it is considering the acquisition of Bluewolf Group LLC, a prominent player in cloud consulting and implementation services. Bluewolf, which is at present one of the important partners of Salesforce CRM, is expected to add significant value to IBM’s cloud business.

The deal is expected to be concluded by the second quarter of 2016. Media reports estimate the deal value to be $200 million, though it has not yet been affirmed by IBM or Bluewolf.

IBM expects to combine its own strengths (experience design, data integration, cloud and analytics) with Bluewolf’s capabilities to develop cutting-edge Salesforce consulting practices, especially in the midmarket and enterprise segment. Following the acquisition, Bluewolf will be integrated with IBM’s Interactive Experience (iX) division.

Microsoft Corporation MSFT and Toyota Motor Corporation TM have teamed up to accelerate telematics research, network security and data analytics for delivering Internet connected car solutions.

The duo aims at adding wings to connected car services by combining computer and wireless technology to provide information, entertainment and real time traffic updates to vehicles in motion.

Toyota Connected plans to use Microsoft’s Azure platform to make driving more personal, perceptive and safer. The company stated that the initial investment will be $5.5 million.

Wal-Mart Stores Inc. WMT has joined the league of companies selling 100% cage-free eggs. It intends to implement the change in its North American operations by 2025, per media reports. This Bentonville, AK-based company has been selling cage-free eggs since 2001, though not exclusively.

Wal-Mart and its Sam’s Club warehouse chain will make it mandatory for its egg suppliers to adopt United Egg Producers rules or an equivalent set of standards. Last year too, Wal-Mart urged thousands of U.S. suppliers to curb the use of antibiotics in farm animals.

Pfizer announced that the FDA has approved Inflectra, a biosimilar version of Johnson & Johnson’s JNJ Remicade (infliximab). Inflectra received the nod for all approved indications of Remicade including the treatment of rheumatoid arthritis, ulcerative colitis in adults, plaque psoriasis, psoriatic arthritis, ankylosing spondylitis, and Crohn’s disease in both adult and pediatric patients.

The FDA’s Arthritis Advisory Committee has already recommended an approval for the biosimilar by a vote of 21 to 3, earlier this year. Pfizer stated that it is currently preparing to launch Inflectra in 2016, which depends on marketplace dynamics and intellectual property considerations.

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 0.2%.

Ticker

Last 5 Day’s Performance

6-Month Performance

MMM

+0.8%

+11.8%

GS

-4.1%

-16.9%

IBM

-1.8%

-2.6%

HD

+0.7%

+10.6%

BA

0%

-8.7%

UNH

-1.6%

+9.3%

MCD

+2.1%

+24.5%

TRV

-1.1%

+11.1%

JNJ

+1.2%

+14.9%

AAPL

+0%

-0.9%

Next Week’s Outlook

Global concerns finally affected domestic markets this week even as oil prices continued their downward spiral. Crude prices fell because of the now familiar concerns about the uncertainty of major oil producing countries reaching an agreement on a production freeze. However, fresh concerns from Japan and Europe added to prevailing fears and made their presence felt on the bourses significantly.

The extent to which such reports will continue to impact markets can only be determined by the events of the next few days. However, positive economic data has surfaced yet again and hopefully will continue to do so. Next week features a number of crucial reports including data on retail sales, business inventories, inflation and industrial production. If most of these are encouraging in nature, markets could return to their winning ways in the days ahead.

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INTL BUS MACH (IBM): Free Stock Analysis Report
 
PFIZER INC (PFE): Free Stock Analysis Report
 
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JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
 
BOEING CO (BA): Free Stock Analysis Report
 
TOYOTA MOTOR CP (TM): Free Stock Analysis Report
 
MICROSOFT CORP (MSFT): Free Stock Analysis Report
 
SALESFORCE.COM (CRM): Free Stock Analysis Report
 
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WAL-MART STORES (WMT): Free Stock Analysis Report
 
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