The index endured another tough yet holiday-shortened week as investors braced for a near-term economic slowdown. Markets struggled to find catalysts for growth as concerns about the U.S.-China trade war and the state of the global economy lingered.
Meanwhile, the extent of the yield-curve inversion widened, leading investors to believe that a recession is imminent. Markets did receive a short respite from losses on Thursday, but familiar fears continued to weigh on consumer sentiment.
Last Week’s Performance
The index gained 0.4% on Friday following positive comments from President Trump regarding a resolution of the U.S.-China trade war. Meanwhile, the Commerce Department reported that the Trump administration is considering fresh import tariffs on countries engaging in currency manipulation practices.
The index lost 0.7% last week. This marked the Dow’s fifth straight weekly decline, its longest such streak of losses since 2011. Markets were battered by worsening trade war conditions throughout the week.
It all started with the Trump administration blacklisting Chinese tech behemoth Huawei, a decision which weighed on technology stocks. Consequently, investors opted for safe-haven sovereign bonds, leading to a sharp fall in yields. Moreover, President Trump threatened to stall his infrastructure legislation if Democrats continue to investigate him.
The Dow This Week
Markets were closed on Monday for the Memorial Day holiday. The index declined 0.9% on Tuesday in the absence of visible catalysts, which could boost equities.
Meanwhile, market-watchers closely followed the latest developments on the U.S.-China trade war front. President Trump stated at a press conference in Tokyo that America was still not ready to make a trade deal with China.
The index slumped 0.9% on Wednesday as long-term bond yields declined and widened the extent of the yield curve inversion. This triggered fears of an economic slowdown in the near term.
Meanwhile, trade-war tensions between the United States and China escalated further after the latter hinted at restricting its exports of rare-earth minerals to the former.
The index gained 0.2% on Thursday after the bond yield plunge took a pause. The day’s gains were fueled mostly by shares of McDonald's MCD and Coca-Cola KO, which advanced by 1.6% and 1.3%, respectively.
However, the fall in yields led to shares of the key index component JPMorgan JPM losing 1.1%. Meanwhile, the upside remained limited by lingering trade tensions and concerns about the state of the global economy.
Components Moving the Index
The Boeing Company BA has announced that it received an order for eight 787-10 airplane from Air New Zealand — the flagship carrier of the nation. The list price of the planes was $2.7 billion but the carrier was able to get a discount, which is quite common for bulk orders.
Air New Zealand will take delivery of the new 787-10 planes over a five-year period, beginning 2022. These fuel-efficient planes will be utilized by the carrier to gradually replace its fleet of eight Boeing 777-200. (Read: Boeing Secures Order for 8 Dreamliners From Air New Zealand)
In another development, Zacks Rank #3 Boeing recently secured a $51.5-million contract for providing sustainment engineering services to support up to 17 C-40A aircraft. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.
Per the contract, services to be provided by Boeing include engineering data, technical publications, distribution of technical data and other technical support. Work related to the deal will be done in Seattle, WA, and is expected to get completed by May 2024. (Read: Boeing Secures $52M Navy Deal to Support C-40A Aircraft)
Microsoft Corporation’s MSFT LinkedIn recently inked an agreement to acquire Drawbridge, a startup based in San Mateo, CA.
However, the financial terms of the deal have been kept under wraps. Notably, per Crunchbase data, Drawbridge raised around $68.7 million in funding as a private entity.
Drawbridge’s Identity platform loaded with intelligent targeting capabilities is a key reason for the deal. The startup leverages first-party data to assess customers’ journey with Drawbridge Identity graph to provide robust marketing insights.
Per the deal, LinkedIn aims to enhance Marketing Solutions platform by integrating Drawbridge’s consumer identity technology capabilities. This is expected to aid LinkedIn in enabling customers to better target professional audience and improve returns on ad campaigns across desktop and mobile.
In another development, Microsoft recently inked a deal with Eneco to purchase wind energy from Borssele III/IV project based out of the Netherlands. The latest deal, spanning 15 years, will bring in a total 90-megawatt of wind energy to Microsoft’s renewable portfolio, which is now estimated to have exceeded 1.5-gigawatt.
The Borssele III/IV project is anticipated to commence commercial operations in early 2021, with construction work beginning in fourth-quarter 2019. The facility is estimated to generate 731.5 MW of wind energy. The stock has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Intel Corporation INTC recently made a slew of announcements at COMPUTEX 2019. The chief attraction of the event was demonstration of the much-awaited 10th generation core processor (dubbed “Ice Lake”) by Gregory Bryant from the company’s Client Computing Group (CCG). Intel has a Zacks Rank #3.
The latest processors feature up to 8 threads, 4 cores offering clock frequency of up to 4.1GHz. The CPUs are developed on the company’s 10 nm process technology based on Sunny Cove architecture.
The company announced that the processors are now shipping and scheduled to be available in the holiday season of 2019. However, pricing of the latest chip remains undisclosed.
Further, the CPUs are powered with robust Iris Plus graphics, with an aim to provide immersive visual experience to users with graphics frequency of up to 1.1 GHz. In a bid to provide seamless connectivity, the latest processors are integrated with Intel Wi-Fi 6 and Thunderbolt 3.
The new CPUs leverage Intel Deep Learning Boost to enhance AI performance on the laptop by up to 2.5X primarily for lower latency workloads. (Read: Intel's 10th Gen CPUs Steal the Show at COMPUTEX 2019)
Pfizer Inc. PFE announced that its epilepsy drug, Lyrica (pregabalin), failed to meet primary endpoint in a phase III study, evaluating it as adjunctive therapy in epilepsy patients (aged 5 to 65 years) with primary generalized tonic-clonic (“PGTC”) seizures. Pfizer has a Zacks Rank #3.
Data from the study showed that treatment with Lyrica was not able to achieve a statistically significant reduction in seizure frequency versus placebo in the PGTC seizure patient population.
In the United States, Lyrica is approved for fibromyalgia, diabetic nerve pain, spinal cord injury nerve pain and pain after shingles. Notably, the study was a post-marketing requirement by the FDA. Lyrica is not approved as adjunctive therapy for PGTC seizures in any patient population.
The phase III study evaluated two doses of Lyrica – 5 mg/kg/day and 10 mg/kg/day – over a period of 12 weeks. The safety profile of the drug was similar to what was observed in earlier clinical studies. (Read: Pfizer's Epilepsy Drug Lyrica Fails in Phase III Study)
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 past six months. Over the last five trading days, the Dow has slumped by 2%.
Next Week’s Outlook
Markets are likely to traverse choppy waters in the weeks ahead since near-term concerns refuse to subside. A quick resolution to the U.S.-China trade war seems unlikely at this point with both sides looking keen to escalate the conflict.
Meanwhile, key macroeconomic indicators are hinting that a recession may be close at hand. It is quite likely that these issues will be the major determinants of market direction in the days ahead.
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