Dow 30 Stock Roundup: Chevron, Exxon Beat Estimates, Microsoft Partners with Dropbox

After starting on a low note, the Dow had a good week, boosted by strong economic data and positive indications from the ECB. The blue-chip index slipped after crude prices dropped to a two-year low.

On Tuesday, the Dow gained even though a decline in oil prices dragged down energy shares. The blue-chip index moved upward again on Wednesday after strong jobs data and midterm election results boosted investor confidence.

The blue-chip index gained on Thursday following ECB President Mario Draghi’s statement regarding possible expansion of monetary stimulus by the European Central Bank. The Dow has gained nearly 1% during the first four trading days.

Last Week’s Performance

Bank of Japan’s unanticipated expansion of monetary stimulus helped benchmarks finish at record highs last Friday. Bank of Japan decided to increase its bond purchasing volume to around 80 trillion yen ($727 billion) in a year. This is an increase of 30 trillion yen from its earlier program of bond purchases

On the earnings front, shares of Chevron Corporation (CVX) gained 2.4% after posting strong third quarter earnings. Exxon Mobil Corporation’s (XOM) shares rose 2.4% after reporting impressive third quarter 2014 earnings. Separately, the University of Michigan/Thomson Reuters consumer-sentiment index increased to 86.9 in October, beating the consensus estimate of 86.2.

Over the week, the Dow jumped 3.5%, its biggest weekly gain in around two years. Markets were boosted by encouraging earnings results and impressive economic data over the week. However, benchmarks slipped into the red zone on Wednesday after the Federal Reserve ended its quantitative easing program.

On Wednesday, the Federal Reserve announced it will end its bond-buying stimulus program in October after purchasing the final $15 billion worth of bonds. Meanwhile, the Fed pledged to keep federal funds rate low for a “considerable time” after the end of the monthly asset-purchasing program.

The Dow gained 2% during October. Impressive earnings results and upbeat economic data helped markets offset some of the losses registered in the first half of the month to end in the green in October. Encouraging economic news from the Eurozone and China which include October’s positive Chinese flash HSBC /Markit manufacturing purchasing managers’ index (PMI.V) and China’s impressive factory output data lifted benchmarks in the latter half of the month. Moreover, the prospect of the European Central Bank buying corporate bonds also boosted markets.

However, concerns about global growth particularly that of the Eurozone’s and concerns over outbreak of Ebola virus dented investor sentiment. Moreover, declining oil prices also had a negative impact on markets over the month.

The Dow This Week

The Dow slipped 0.1% on Monday after crude prices dropped to a two-year low. Energy behemoths Chevron and Exxon Mobil were among the decliners following a plunge in crude oil prices. Saudi Arabia’s decision to reduce export prices of crude for the US market, while hiking them for Asia was the major trigger for the decline in prices. However, a mid-session surge had helped the blue-chip index hit an intra-day record high before closing in the red.

The day’s economic reports could not prevent benchmarks from ending in the red. The U.S. Census Bureau of the Department of Commerce reported that September’s construction spending dropped 0.4% from August to a seasonally adjusted annual rate of $950.9 billion. In contrast, the Institute for Supply Management reported expansion in economic activity in the manufacturing sector in October. The PMI improved to 59 in October, 2.4 percentage points higher than September.

Benchmarks ended mostly in the red zone on Tuesday as decline in oil prices dragged down energy shares. The price of U.S. crude oil declined to its lowest level in almost three years on Tuesday which had a negative impact on energy shares. Disappointing earnings outlook and results, and concerns about economic growth in the Eurozone also dented investor sentiment.

The European Commission’s downgrade of the Eurozone’s growth outlook dented investor confidence. The European Commission now expects the region’s economy to grow at 0.8% this year and 1.1% next year, down from its previous estimates of 1.2% and 1.7%, respectively. However, unlike other benchmarks, the Dow gained 0.1%.

The Dow moved upward again on Wednesday, gaining 0.6%. Strong jobs data and midterm election results boosted investor confidence. Automatic Data Processing, Inc. (ADP) reported that the economy has added 230,000 private jobs in October, the seventh straight month of job gains in excess of 200,000.

Separately, as widely expected, the Republicans notched a strong win in the midterm elections over the Democrats to take control of the U.S. Senate. Investors were enthused by the results as they believe that with Republicans gaining control of both chambers, several bills will be cleared.

These include possible revocation of medical device taxes which have been a very unpopular part of Obama’s Affordable Care Act and expansion of the pipeline connecting Canadian oil sands and Gulf of Mexico.

The blue-chip index gained 0.4% on Thursday following ECB President Mario Draghi’s statement regarding possible expansion of monetary stimulus by the European Central Bank. Draghi said ECB members are unanimously prepared for unconventional policy tools “if needed” to beat ultralow inflation.

Draghi indicated that the ECB may boost its balance sheet to Mar 2012 level by pumping in additional 1 trillion euros. However, the interest rate was maintained at record low level of 0.05%. Separately, the U.S. Department of Labor reported that jobless claims declined by 10,000 from previous week’s tally to 278,000 for the week ending Nov 1. This was the eighth-straight week that initial claims remained below 300,000.

Components Moving the Index

Chevron reported strong third quarter earnings on improved downstream results that saw refining margins climb on lower input costs. Earnings per share came in at $2.95, well above the Zacks Consensus Estimate of $2.54 and also improved from the year-ago profit of $2.57 per share.

However, the company’s quarterly revenue decreased 6.5% year over year to $54,679 million and underperformed the Zacks Consensus Estimate of $56,665 million amid a decline in crude oil prices.

Chevron’s total production of crude oil and natural gas decreased nearly 1% from the year-earlier level to 2,568 thousand oil-equivalent barrels per day (MBOE/d). Though the U.S. output augmented 3.4% year over year, the company’s international operations (accounting for 74% of the total) registered a 2% fall in volumes. Chevron’s downstream segment achieved earnings of $1,387 million, considerably higher than the profit of $380 million last year.

ExxonMobil posted third-quarter 2014 earnings of $1.89 per share, beating the Zacks Consensus Estimate of $1.75. The bottom line also increased from $1.79 in the year-ago quarter. The upside came from higher margins and improved operations in the Downstream and Chemical businesses.

Total revenue in the quarter decreased from $112.4 billion in the year-ago quarter to $107.5 billion. The top line, however, beat the Zacks Consensus Estimate of $101.0 billion as well.

Quarterly earnings for the upstream segment were $6.4 billion, down $297 million year over year. The decrease stemmed from lower realizations, partly compensated by a favorable volume mix. The downstream segment recorded profit of $1.0 billion in the third quarter, up $432 million year over year, mainly attributable to higher refining margins.

JPMorgan Chase & Co. (JPM) revealed that regulators across the globe are conducting investigations into its foreign-exchange (:FX) trading-related operations.

The probes are mainly focused on JPMorgan’s spot FX trading activities and the corresponding controls in place to offer these services. The agencies involved in the probe include the U.S. banking regulators, the Commodity Futures Trading Commission (:CFTC), the U.K. Financial Conduct Authority (FCA) and other foreign government authorities.

IBM Corp. (IBM) has entered into a partnership with micro blogging site Twitter Inc. (TWTR). Per the deal, IBM will integrate Twitter’s data into its own products for predicting market trends for its clients. However, the financial details of the deal were not made public.

Moreover, both the companies will collaborate to develop unique solutions for specific industries such as banking, consumer products, retail, and travel and transportation. Additionally, IBM is expected to provide special training to some personnel regarding how data from tweets can be interpreted to shape up business decisions.

Microsoft Corporation (MSFT) recently launched Microsoft Health, its health application and Microsoft Band, its long rumored wearable health and fitness device.

Microsoft Health includes a cloud service for customers to store and put together health and fitness data from various sources to create a more insightful picture. Microsoft Health is not just platform specific but is available as a smart device application too.

The company also announced that it has officially discontinued the retail sales of some versions of Windows 7 and 8 to clear the path for the newer versions of the operating systems (:OS).

Microsoft has also announced a partnership with Dropbox Inc. to integrate Office with the Dropbox software allowing Office users to manage files easily via mobile applications. This partnership will help both Microsoft and Dropbox to leverage each other’s resources. Dropbox, in addition, will be able to attract even more business users. However, these users will only get access to the app through an Office 365 subscription.

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 1.2%.

Next Week’s Outlook

Economic data and strong earnings results have once again pushed the Dow upward this week. Additionally, indications of further monetary stimulus from the ECB have provided a further boost to markets. Oil prices remain a worry, but the blue-chip index has managed to defy their downward slide on all days of the week but for Monday.

Earnings will begin to taper off by next week and the focus will shift to economic data and international developments. Among the economic reports lined up for next week are data on wholesale inventories, initial claims and retail sales. Any positive indications on this front could help stocks notch up further gains in the days ahead.

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