The Dow experienced another volatile week, rising and falling on alternate days. The blue-chip index increased on Monday following a pause in the dollar rally. The Dow declined on Tuesday as investors grew jittery ahead of FOMC’s statement regarding rate hike.

The blue-chip index rebounded on Wednesday after FOMC’s policy statement indicated federal funds rate would be raised only gradually. The Dow finished lower on Thursday after stronger US dollar adversely affected oil and other commodity prices. The Dow has gained 0.7% during the first four trading days.

Last Week’s Performance

Last Friday, the Dow declined 0.8% after a strengthening U.S. dollar and a slump in oil prices dragged stocks lower. The dollar strengthened on speculation that the currency was oversold. The euro plunged to a new 12-year low against the dollar on Friday. The U.S. dollar index gained 1.22% to 100.32, a level last touched on Apr 2003.

Strengthening U.S. dollar weighed on oil prices, which dropped to their lowest levels since Jan 28. Additionally, the International Energy Agency (IEA) said global crude oil supply was in excess of demand.

Meanwhile, declines in producer prices and consumer confidence added to the bearish sentiment. Wholesale prices dropped for four straight months in February. PPI and core PPI both declined 0.5% in February. Meanwhile, the University of Michigan and Thomson Reuters’ preliminary reading of consumer sentiment declined in March to 91.2.

The blue-chip index lost 0.6% over last week. Investors remained concerned about the possibility of a mid-year interest rate hike. Strong labor market conditions injected fears among investors that the Fed may raise interest rate sooner-than-expected. Analysts also believe the Fed will start the rate hike process by dropping the ‘patient’ phrase after the upcoming Federal Open Market Committee (FOMC) meeting that is scheduled to begin on Mar 18.

Concerns about rate hike continued to strengthen the U.S. dollar against major currencies. The continuous decline in the euro raised the possibility that the two currencies are moving towards parity in the not-too-distant future. The European Central Bank’s (ECB) quantitative easing program is cited to be the most important factor behind the euro slide. Among the positives, financial stocks posted solid gains on Thursday after Fed’s stress tests.

The Dow This Week

Markets rebounded on Monday, after a pause in the dollar rally helped benchmarks start the week on a positive note. The dollar’s rally took a breather on worries that the Federal Reserve may become cautious about hiking interest rates sooner than expected during the Federal Open Market Committee (FOMC) meeting scheduled to begin on Mar 18.

Fed officials are expected to alter the guidance on interest rates by dropping the ‘patient’ phrase in the policy meeting. The U.S. dollar index dropped almost 1% on Monday after it had gained nearly 3% last week. The Dow jumped 1.3%.

Rally in international markets also boosted investor sentiment. The German DAX 30 index went up 2.2%. The index jumped above the 12,000 mark for the first time on Monday. France’s CAC-40 also gained 1%. The Shanghai Composite Index rallied more than 2%.

Meanwhile, a batch of mixed domestic economic data failed to have a negative impact on investor sentiment. Industrial production increased 0.1% in February, but came in lower than estimates of a 0.2% increase. Capacity utilization decreased to 78.9%.

Additionally, the Empire State Manufacturing Survey Index came in at 6.9 in March, declining from 7.78 in February. Separately, the NAHB/Wells Fargo Housing Market index slipped to 53 in March.

The blue-chip index declined 0.7% on Tuesday as investors grew jittery ahead of FOMC’s statement regarding rate hike. Investors were looking for clues as to when the Federal Reserve will start hiking rates. Fed officials were expected to begin the rate hike process by dropping the “patient” phrase.

Meanwhile, Tuesday’s weak data on housing starts raised questions whether the Fed will be in a hurry to raise federal funds rate. Housing starts plunged 17% to 897,000 in February from January’s revised tally of 1,081,000. Oil prices dropped again on Tuesday on concerns over significant increase in supplies in both the U.S and Libya.

The Dow gained 1.3% on Wednesday after FOMC’s policy statement indicated federal funds rate would be raised only gradually. The Federal Reserve’s move to eliminate the “patient” phrase from its guidance indicated the central bank edged a step closer to its much-anticipated first rate hike since 2006. However, the Fed officials downgraded economic growth and inflation projections, signaling it is no hurry to raise borrowing costs. 

Ahead of the Fed statement, investors were selling income generating stocks including utilities on anticipation of an imminent hike in short-term interest rates. However, the Fed’s move to open the door for a rate hike helped these stocks end in the green. Meanwhile, energy shares moved north following a rise in oil prices. Crude oil prices ended a six session losing streak after the Fed reduced its growth outlook and the dollar weakened.

Stocks finished mostly lower on Thursday after stronger US dollar adversely affected oil and other commodity prices, dragging down energy and material stocks. The greenback staged a comeback on Thursday and traded at $ 1.0653 against the euro, compared to $ 1.0831 on Wednesday. The dollar strengthened against major currencies after it had weakened on Wednesday following an unexpected dovish stance by the Federal Reserve.

On the economic front, the U.S Department of Labor reported that seasonally adjusted initial claims increased 1,000 to 291,000 in the week ending Mar 14. Additionally, the Philadelphia Federal Reserve’s manufacturing index dropped to 5.0 in March from 5.2 in February. The consensus estimate expected the index to climb to 7.6. The blue-chip index declined nearly 0.7%.

Components Moving the Index

The Walt Disney Company’s DIS Cinderella opened at the #1 slot on Mar 13 and has since earned more than $ 80 million in the U.S., as of Mar 18. The classic fairy tale continues to work its magic for Disney.

This movie is a live action remake of the original classic. With the colors, vibrancy, lavish sets and extravagant costumes, Cinderella has managed to secure thumbs up from the critics. The addition of a short ‘Frozen Fever’ film is contributing to the movie’s success. The movie is playing out at 3,845 domestic screens.

As per Box Office Mojo, Cinderella is doing extremely well in the international territories too. The movie has raked in over $ 60 million from 31 markets with $ 25 million coming from China. Made at a budget of $ 95 million, it looks like the movie will cross the $ 200 million mark within the next weekend itself.

The Goldman Sachs Group, Inc. GS priced 6 million shares in the initial public offering (IPO) of its specialty lending unit – Goldman Sachs BDC Inc. – for $ 20 per share on Tuesday. The financial major said that the unit’s shares will initiate trading on the New York Stock Exchange, under the ticker symbol “GSBD” on Wednesday.

Notably, shares were priced at the low end of the targeted range $ 20–$ 21, announced last week. The total proceeds summed to $ 120 million. Goldman Sachs BDC intends to utilize the proceeds of the offering for repaying a part of its debt under the senior secured revolving credit facility. Formed in 2012, Goldman Sachs BDC is a business development company investing mainly in middle-market companies in the country. 

The Procter & Gamble Company’s PG share price increased 2.1% on Mar 16 as media reports indicated that the branded consumer products company would likely sell or spin off some of its beauty brands. The company is reportedly in talks with its advisers on the plan and no final decision has been made yet.

The Boeing Co. BA received a follow-on contract for additional work on CH-47 helicopters for the U.S. Army. This modification contract is valued at $ 713.9 million. The contract covers 26 remanufactured CH-47Fs, four new CH-47s, and an option for two additional helicopters. It also includes funding for parts and supplies with a long lead time. The work under this contract is slated for completion by Dec 31, 2020 and will be carried out at Ridley Park, PA.

3M Company MMM recently completed the acquisition of Ivera Medical Corp — a manufacturer of healthcare products — for an undisclosed amount. Following the acquisition, Ivera is now a subsidiary of 3M and a part of its critical & chronic care solutions division. The acquisition is aligned with 3M’s existing line of vascular access products. Ivera’s I.V. port connector caps under the Curos Brand are used to disinfect devices used for access into the patient’s bloodstream.

DuPont DD has officially rejected the latest board seat proposal of activist investor Nelson Peltz’s Trian Fund Management. Trian proposed DuPont last week to add two nominees (including its CEO and founding partner Peltz) to the company’s board and another two to the board of Chemours – the unit which the chemical behemoth plans to spin off by mid-2015. Trian urged DuPont to accept all four nominees and alter certain corporate governance provisions at Chemours.

DuPont, however, rebuffed the proposal last Friday by citing that it does not represent a meaningful step toward a constructive resolution. The company, in a regulatory filing, said that direct representation by a Trian principal is not a mutually acceptable resolution that serves the best interests of its shareholders.

Merck MRK announced encouraging results from its large cardiovascular outcomes study, IMPROVE-IT, evaluating Vytorin in patients suffering from acute coronary syndrome. Vytorin is a combination of Zocor (simvastatin) and the non-statin Zetia (ezetimibe).

Results revealed that Vytorin reduced total cardiovascular events by 9% as compared to treatment with Zocor alone. These data were presented at the 2015 American College of Cardiology Scientific Sessions.

In a separate development, received disappointing news with the FDA cancelling a previously scheduled meeting with the Anesthetic and Analgesic Drug Products Advisory Committee on Mar 18 to consider the company’s resubmitted new drug application (NDA) for sugammadex.

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 gained 0.6%.

Ticker

Last 5 Day’s Performance

6-Month Performance

V

-0.7%

+23.6%

GS

+1.7%

+2%

MMM

+0.8%

+12.9%

IBM

+0.8%

-17.6%

BA

+0.6%

+19.1%

UTX

+0%

+10.1%

HD

+0.6%

+24.7%

UNH

+7%

+37.5%

TRV

+3.1%

+15.3%

CVX

+1.2%

-16.1%

Next Week’s Outlook

The outcome of the FOMC meeting and the fortunes of the dollar guided the markets through the week. Markets remained tense ahead of the outcome of the meeting. However, the central bank’s reassurances have provided significant relief to investors. Rate hike fears are now unlikely to weigh on sentiment for some time now. The importance of oil price changes has also reduced significantly.

However, the fortunes of the dollar are likely to guide stocks going forward. The ECB’s easing program and reassurances from the Fed mean that the dollar is likely to gain in strength going forward. Meanwhile, economic reports were mixed in nature, though they had little impact on markets.

However, given that tensions over the Fed’s policy stance have abated, the focus may shift to other economic indicators.  Several economic reports are lined up for next week, with final GDP numbers heading the list. Positive news on this front will surely deliver a much needed boost to stocks in the days ahead.

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PROCTER & GAMBL (PG): Free Stock Analysis Report
 
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DU PONT (EI) DE (DD): Free Stock Analysis Report
 
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DISNEY WALT (DIS): Free Stock Analysis Report
 
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