Dow 30 Stock Roundup: Yellen Boosts Sentiment, Cisco System, Inc. Disappoints

Dow 30 Stock Roundup: Yellen Boosts Sentiment, Cisco System, Inc. Disappoints

The Dow has had a good run of late, with Wednesday being the sole dark spot this week. Janet Yellen’s assurances about a low interest rate environment provided a shot in the arm to investor sentiment. This helped the blue chip index post four consecutive days of gains, beginning last Thursday. So far this week, the Dow has gained an impressive 1.43%.

Last Week’s Performance

Friday was a good day for the Dow which gained 165 points, or 1.1%. This was primarily due to a fall in the unemployment rate, which dropped to a five year low. Meanwhile, the construction sector added 48,000 jobs over the month, which negated December’s decline of 22,000.

Friday’s gains, along with the gains the benchmarks scored on Thursday, helped markets finish in the green last week. A drop in initial claims and encouraging results from The Walt Disney Company (DIS) had helped benchmarks achieve their best single-day performance since Dec 18 on Thursday. The combined gains offset benchmarks’ losses last week.

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The Dow This Week

Investors refrained from placing big bets on Monday ahead of Federal Reserve Chair Janet Yellen’s first testimony before lawmakers. As a result, the Dow closed almost at the same level at which it opened the trading session, adding a meager 0.1%.

Yellen’s pledge to keep interest rates low led benchmarks sharply higher on Tuesday. The blue chip soared, gaining 1.2%. The day’s gains extended benchmarks’ bullish run into their fourth day, the longest one for the year.

The rally ended on Wednesday, with the Dow losing 0.2%.  Guidance cuts and lower profits from corporates caused the decline. However, some encouraging corporate results too helped restrict losses. But the blue chip index returned to its winning ways on Thursday. Investors overlooked weak consumer and employment data to focus on strong earnings numbers.

Components that Moved the Index

Cisco Systems (CSCO) reported second-quarter fiscal 2014 earnings of 42 cents a share, beating the Zacks Consensus Estimate by a penny. Revenues decreased 7.8% year over year and 7.4% sequentially to $11.2 billion. For the third quarter of fiscal 2014, Cisco expects revenues to decrease in the range of 6% to 8% on a year-over-year basis, while Zacks Consensus revenue estimate is pegged at $11.3 billion.

Non-GAAP gross margin is expected to be 61%–62% and non-GAAP operating margin is expected to be 26.5%–27.5% of revenues. The company expects a non-GAAP tax rate of 21%, yielding non-GAAP earnings per share of 47 to 49 cents.

The Procter & Gamble Company (PG) recently reduced its fiscal 2014 sales and earnings forecasts to reflect the impact of higher-than-expected currency headwinds. Core earnings per share are expected to grow in the range of 3%–5% in fiscal 2014 down from 5%–7% to reflect currency rate fluctuations in Venezuela and recent currency devaluations by several other developing countries.

Currency headwinds are now expected to hurt 2014 earnings by 9%, higher than 7% as expected earlier. On a constant currency basis, core earnings are still expected to grow 12%–14%.

McDonald’s Corp. (MCD) posted better-than-expected comparable sales (comps) for the month of Jan 2014. At its fourth quarter earnings call, the company guided flat year over year comps for the month of January. However, comps increased 1.2% in the month. The increase was much better than a decline of 1.9% in the year-ago period.

The improved comps reflect solid performance in the international markets (Europe and Asia/Pacific, Middle East and Africa [APMEA]), partially offset by a poor performance in the U.S.

Performance of the Top 10 Dow Companies

The table given below shows the price movements of the ten largest components of the Dow, which is a price weighted index, over the last five days and during the last six months.

Ticker Last 5 Day’s Performance 6 month performance
V +1.02% +25.62%
IBM +2.59% -3.03%
GS +1.32% +0.44%
MMM -0.15% +10.64%
BA +1.95% +24.33%
CVX +0.41% -7.82%
UTX +2.32% +7.84%
XOM -+0.94% +2.79%
MCD -0.48% -0.68%
CAT +1.31% +11.99%

Next Week’s Outlook:

We have a holiday shortened week coming up. Markets will be closed on Monday because of the President’s Day holiday. But for housing markets data, economic reports are also comparatively sparse, barring the leading indicators release. However, the impact of Fed Chair Yellen’s statement about further tapering and the health of the global economy will determine whether the Dow can extend its recent run of gains.

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