Here’s Why The Dow Jones Industrial Average Plunged This Week

April 15, 2017 6:12am INDEXDJX:.DJI NYSE:DIA

yield-down

From Zacks: The Dow Jones Industrial Average (DJIA) experienced an eventful and holiday shortened week, marked by growing geopolitical tensions.


The index received a slight boost on Monday, primarily from energy shares, after U.S. oil prices closed at a one-month high. On Tuesday, the index slipped marginally following concerns over increase in geopolitical tensions including the U.S. attack on a Syrian air base and possible conflict with North Korea. These concerns flowed into Wednesday, leading to larger losses for the Dow.

Last Week’s Performance

The Dow declined marginally last Friday, dragged down by weaker-than-expected March jobs data and President Trump’s surprise attack against an airbase near Homs, Syria. Jobs data showed an increase of 98,000 jobs in March, marking the smallest gain in almost a year. Moreover, New York Fed President William Dudley’s comments hinting at a simultaneous rate hike along with Fed’s plan to reduce its balance sheet, adversely affected the equity market.

Over the last week, the index declined 0.03%. During the week, stocks suffered a setback after the release of minutes from the Federal Reserve. Weak auto sales data and a dip in manufacturing growth rate also had an adverse impact on the investor sentiments which eventually led the benchmarks to finish in the red.

The Dow This Week

The index gained marginally on Monday, boosted primarily by energy shares, which gained after U.S. oil prices closed at a one-month high. Gains in energy shares offset some geopolitical turmoil including U.S. attack on Syrian air base last Thursday. Meanwhile investors remained focus on bank earnings set to begin later this week. Financials declined as investors expressed concerns over lofty valuations of equities and raised doubts over Trump’s ability to implement his pro-growth policies.

The index declined a meagre 0.03% on Tuesday as investors remained concerned over increase in geopolitical tensions including the U.S. attack on a Syrian air base and possible conflict with North Korea. Investors remained focused on upcoming corporate earnings results while they also raised questions over Trump’s ability to implement deregulation policies. Meanwhile, Trump’s comments on revamping the Dodd-Frank law helped stocks pare losses.

The index lost 0.3% on Wednesday as investors remained worried about rising geopolitical concerns including U.S. strike on a Syrian air base last week and escalating tension between U.S. and North Korea. The rise in geopolitical tensions led S&P 500 and Dow industrials to finish below their 50-day moving averages for the first time since November. The market’s fear gauge touched a five-month high. Investors also kept close watch on the Presidential election in France.

Components Moving the Index

3M Company (MMMFree Report) has over 109,000 patents in various categories across its product portfolio. Over the years, the company has successfully enforced its patent rights against unauthorized uses and filed legal suits against firms that infringed them. The latest of such litigations is a patent infringement suit against China-based manufacturing firm, Phoenix Automotive Refinishing and California-based marketing firm, K2 Concepts.

In the lawsuit filed in the Central District of California, 3M alleged that Phoenix violated seven patents, manufacturing some automotive painting spray gun cup products in China and selling them in the U.S. through K2 Concepts. The infringed patent relates to 3M’s PPS technology that facilitates the efficient mixing and spraying of coatings for automotive collision repair. The stock has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Walt Disney Company’s (DISFree Report) latest live-action remake “Beauty and the Beast” is only few million away from touching the magical figure of $1 billion. The stock has a Zacks Rank #3 (Hold).

So far “Beauty and the Beast” has grossed $984 million globally, making it the 29th highest grossing movie of all time internationally and is behind “The Dark Knight”, “The Hobbit: An Unexpected Journey”, “Zootopia” and “Alice in Wonderland”. To date, the movie’s overseas collections are pegged at $550.5 million and if it continues to perform at the same level then it is likely to cross $1 billion mark globally. Notably, the movie was made at a budget of nearly $160 million. (Read: Disney’s (DISFree Report) Beauty and the Beast Nears $1 Billion Mark)

Wal-Mart Stores, Inc. (WMTFree Report) is reportedly laying off a number of employees this month in its international and technology businesses and at Sam’s Club warehouse chain. Per The Wall Street Journal, the move is part of Zacks Rank #3 rated Wal-Mart’s plans to lower expenses, owing to rising costs.

The company has been witnessing increased costs due to higher investment in e-commerce operations. The company is making efforts to maintain its low-cost pricing in the U.S. retail sector and streamline stores, making them more efficient. (Read: Wal-Mart (WMTFree Report) Announces Job Cuts to Bring Down Expenses)

Merck & Co., Inc. (MRKFree Report) announced that the FDA has denied approval to include cardiovascular outcomes data on the labels of its diabetes drug, Januvia (sitagliptin) and other medicines containing Januvia.

The FDA issued a complete response letter to Zacks Rank #3 rated Merck’s supplemental new drug applications (sNDA) seeking approval to include data from the TECOS (Trial Evaluating Cardiovascular Outcomes with Sitagliptin) trial on labels of Januvia, Janumet (Januvia+ metformin HCl) and Janumet XR, an extended release formulation of Janumet. Merck is reviewing the letter and will discuss further steps with the FDA. (Read: Merck’s Bid to Add Cardiovascular Data on Januvia Label Fails)

Intel Corp (INTCFree Report) has finally completed the divestiture of its majority stake in Intel Security division to alternative asset fund manager TPG. The newly spun-off unit has been renamed McAfee, with TPG holding 51% stake.

As previously announced, Zacks Rank #4 (Sell) rated Intel and TPG valued the security division at $4.2 billion. Per the agreement, Intel received $3.1 billion in cash and retained 49% stake post the completion of the transaction.

Per an agreement with TPG, private equity firm Thoma Bravo also joined as a minority shareholder. Moreover, TPG’s investment of almost $1.1 billion in the standalone business will boost McAfee’s capital base. (Read: Intel Trims Business, Sells Majority Stake in Security Unit)

Microsoft Corp (MSFTFree Report) has acquired container technology specialist, Deis for an undisclosed amount. The acquisition will help it boost Azure Cloud’s ability to run containerized workloads.

Per a blog post, Scott Guthrie, Zacks Rank #3 rated Microsoft’s Executive Vice President, Cloud and Enterprise Group, said “Containers have been at the forefront of cloud transformation in recent years, and for good reason: Container technologies let organizations more easily build, deploy and move applications to and from the cloud.” He further added that Deis will give “developers the means to vastly improve application agility, efficiency and reliability through their Kubernetes container management technologies.”

Kubernetes is an open source system, designed by Alphabet’s (GOOGLFree Report) Google, to help in automation of deployment, scaling, and management of containerized applications. (Read: Microsoft (MSFTFree Report) Acquires Deis to Boost Azure Cloud Services)

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 0.3%

Ticker Last 5 Day’s Performance 6-Month Performance
MMM -0.2% +11.6%
GS -0.5% +34.8%
IBM -1.1% +11%
HD -0.1% +16%
BA -0.6% +32%
UNH +0.6% +23.4%
MCD +0.3% +13.7%
TRV +0.2% +5.6%
JNJ +0.6% +6%
AAPL -1.6% +21.2%

Next Week’s Outlook

Several crucial economic reports and big bank earnings are lined up for release over the end of this week and the next. Bank earnings are likely to set the tone for the rest of the earnings releases while data on retail sales and industrial production will provide clues about the Fed’s future actions. However, geopolitical issues are likely to hold center stage and it is likely that such developments will dictate the direction of markets in the days to come.

The SPDR Dow Jones Industrial Average ETF (NYSE:DIA) closed at $204.37 on Thursday, down $1.30 (-0.63%). Year-to-date, DIA has gained 3.47%, versus a 4.02% rise in the benchmark S&P 500 index during the same period.

DIA currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #5 of 74 ETFs in the Large Cap Value ETFs category.


This article is brought to you courtesy of Zacks Research.


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