The index endured a turbulent week but gained after the Fed Chair indicated that a rate was likely later this month. Last Friday’s strong jobs numbers spooked investors on the first two trading days of the week since they dampened hopes of a near-term rate cut. However, Jerome Powell’s testimony to Congress allayed such fears, assuring investors that a reduction in rates was nearly certain.
Last Week’s Performance
The index lost 0.2% last Friday despite robust job additions in June. The U.S. economy added 224,000 jobs last month compared with a revised 72,000 in May, exceeding the consensus estimate of 161,000. Investors’ fears that strong labor market data will delay a rate cut by the Fed, scheduled to meet on July 30-31, led to these losses. With these losses, the Dow ended a four-day winning streak.
The index gained 1.2% last week. Last week’s rally was primarily fueled by strong expectations of a rate cut by the Fed in July. The resumption of trade talks between the United States and China also boosted investors’ confidence. Notably, the two sides agreed not to impose further tariffs on each other at least for the time being.
The Dow This Week
The index declined 0.4% on Monday as investors awaited Jerome Powell’s testimony later in the week. Further, stronger-than-expected jobs data for June dampened hopes for a rate cut by the Fed after its next meeting. Shares of Boeing BA declined 1.3% and weighed on the Dow. The aerospace giant lost out to Airbus on a $5.5 billion deal with a Saudi Arabian airlines company.
The index lost 0.1% on Tuesday as investors awaited Powell’s testimony. Market watchers expected that the Fed Chief would shed some light on the future of the U.S. monetary policy. Shares of 3M MMM declined 2.1% and weighed on the Dow.
The index gained 0.3% on Wednesday following Powell’s testimony before Congress. The Fed Chief stated that the central bank would act appropriately to support the country’s economic growth. Further, minutes from the Fed’s latest meeting also hinted at a softer policy stance.
The index surged 0.9% to hit a record high on Wednesday, crossing the 27,000-mark for the first time. Investors were reasonably confident after this week’s comments from the Fed Chair that a rate hike will take place later this month. Shares of UnitedHealth UNH gained more than 5% after the Trump administration backed off from a proposal to do away with drug rebates.
Components Moving the Index
Cisco Systems CSCO recently expressed its intention to acquire Acacia Communications ACIA, an optical networking technology company, for $2.6 billion in cash and marketable securities. Consequently, Acacia shareholders will obtain $70 per share in cash, approximately a premium of 46% over the $64.91 price on Jul 8, 2019.
Cisco anticipates the acquisition to close in the second half of next year subject to customary closing conditions. Post deal closure, Acacia will join Cisco's Optical Systems and Optics group — networking and security business.
Massachusetts-based Acacia designs, develops, manufactures and markets communication equipment. The company offers coherent optical interconnect products for cloud infrastructure operators and content and communication service providers.
It operates primarily in the Americas, Europe, the Middle East, Africa, and the Asia Pacific region. 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 Corporation CVX and Phillips 66’s PSX joint venture, Chevron Phillips Chemical, recently inked a deal with Qatar Petroleum to develop an $8-billion petrochemical plant in the Gulf Coast region of the United States. The announcement of the deal comes on the heels of another pact signed between the companies just a few weeks ago to build the biggest petrochemical facility in Qatar for producing ethylene.
The latest facility, called the U.S. Gulf Coast II Petrochemical Project (UGSC II), would comprise an ethane cracker, which will process ethane — a byproduct of oil and gas drilling — into 2 million metric tons of ethylene, the building block of plastics, per year. The project will also include two high-density polyethylene units, each having the capacity to process ethylene into 1 million tons of polyethylene, which is the world’s most common plastic.
While Qatar Petroleum will hold a 49% interest in the UGSC II project, Zacks Rank #3 Chevron Phillips Chemical will be the majority owner with a 51% stake, and be responsible for operation and management of the facility. Headquartered in Texas, Chevron Phillips Chemical is equally owned by Chevron and Phillips 66. (Read: Chevron-Philips JV, Qatar Unite for $8B Petrochemical Plant)
Johnson & Johnson JNJ and Bayer AG’s BAYRY and subsidiary, Janssen Pharmaceuticals Inc., announced new results from the phase III EINSTEIN-Jr study in children with venous thromboembolism (VTE). The results were similar to those seen in previous studies in adults. Johnson & Johnson has a Zacks Rank #3.
In the study, pediatric patients (aged birth to 17 years) treated with blood thinner Xarelto (rivaroxaban) had a similar low risk of recurrent VTE or blood clots and similar rates of bleeding compared to current standard anticoagulation therapy.
EINSTEIN-Jr is the largest pediatric study conducted for the treatment of VTE, and the first to examine the use of a direct oral anticoagulant in this population.
The study showed that 4 out of 335 (1.2%) children treated with Xarelto and 5 out of 165 (3.0%) treated with standard of care had recurrent VTE. Clinically relevant bleeding occurred in 10 children (3%) treated with rivaroxaban and 3 (1.9%) with standard of care.
The absolute and relative safety and efficacy results seen in the EINSTEIN-Jr. study are consistent to those from previous rivaroxaban studies in adults. The composite of recurrent VTE and major bleeding occurred in 1.2% of the Xarelto group and 4.2% of the standard anticoagulation group. (Read: Bayer-J&J Announce Positive Xarelto Data in Children with VTE)
International Business Machines Corporation IBM has completed the acquisition of Red Hat in a cash-and-stock deal valued at about $34 billion. The deal, which was announced in October 2018, is part of the company’s efforts to bolster Open Hybrid Architecture Initiative. Consequently, Red Hat shareholders will obtain $190.00 per share in cash.
The deal marks Zacks Rank #3 IBM’s largest acquisition ever and the combined company is likely to alter the dynamics of “the cloud market for business.” Specifically, IBM hopes to leverage Red Hat to help it become the world’s largest hybrid cloud platform provider.
The company anticipates the Red Hat buyout to lead to a revenue CAGR of two points over a five-year period. IBM also anticipates Red Hat buy to aid it in sustaining robust dividend growth. (Read: IBM Acquires Red Hat for $34B, Boosts Hybrid Cloud Platform)
Merck & Co., Inc. MRK announced that the FDA has accepted for review its supplemental Biologics License Applications (sBLAs) looking for approval of an improved dosing schedule of its blockbuster anti-PD-1 therapy, Keytruda.
Zacks Rank #2 Merck is looking for approval of a six-week 400 mg dosing option of Keytruda for six indications — melanoma, classical Hodgkin lymphoma, primary mediastinal large B-cell lymphoma, gastric cancer, hepatocellular carcinoma and Merkel cell carcinoma.
The new recommended dose will be delivered as an intravenous infusion over 30 minutes and provide greater flexibility than the currently approved dose of 200 mg every three weeks infused over 30 minutes. The FDA will give its decision on Feb 18, 2020.
In March, the European Commission had approved the 400 mg six-week dosing schedule of Keytruda for approved monotherapy indications in EU. (Read: Merck's Keytruda sBLAs for 6-Week Dosing to be Reviewed by FDA)
Microsoft Corporation MSFT recently expanded partnership with ServiceNow Inc. NOW with an aim to accelerate digital transformation. However, the financial terms of the deal have been kept under wraps.
With the partnership, Zacks Rank #3 Microsoft and ServiceNow are focusing on enhancing their portfolio with more intelligence and cognitive capabilities. This in turn will lead to incremental adoption of Now Platform, Microsoft 365 and Azure, benefiting the top line of both the companies.
Notably, ServiceNow, for the first time, will host its SaaS workloads on Azure, apart from its own private cloud platform. (Read: Microsoft, ServiceNow Partner to Boost Digital Transformation)
Performance of the Top 10 Dow Companies
The table given below shows the price movement of the 10 largest components of the Dow, which is a price-weighted index, over the last five days and during the past six months. Over the last five trading days, the Dow has gained 1.2%.
Next Week’s Outlook
Markets have suffered volatile trading this week but have emerged stronger. With rate cut hopes restored, the index created a new milestone toward the end of the week. Since economic data remains largely robust as well, the stage is set for strong gains. In the absence of fresh trade tensions, stocks are likely to notch up gains in the weeks ahead.
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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
International Business Machines Corporation (IBM) : Free Stock Analysis Report
ServiceNow, Inc. (NOW) : Free Stock Analysis Report
Merck & Co., Inc. (MRK) : Free Stock Analysis Report
Bayer Aktiengesellschaft (BAYRY) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
Acacia Communications, Inc. (ACIA) : Free Stock Analysis Report
The Boeing Company (BA) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
3M Company (MMM) : Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
Phillips 66 (PSX) : Free Stock Analysis Report
Chevron Corporation (CVX) : Free Stock Analysis Report
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