Assignment

The Dow Jones Industrial Average has increased by over 100 points this past week to 16,426.59 at 2pm on 6th March. This increase can be attributed to market drivers such as a wave of optimism by investors over favourable corporate earnings reports expected and already realized. Nonetheless, a company can report poor earnings but its stock can rise if it exceeds the expectation of market analysts (Choudhry, 2010). This is explained by the fact that the market reacts more to what it expects other than the reality of the status of the market. Another driver of the market is the fact that the US state and local tax revenue augmented by approximately 4.7% in the first quarter. This is an indication that the economy is growing in a good direction.

Germany released a report indicating that its economy was improving. In light of this news, the European stock markets rose and the effects could be felt in the US stock markets seeing they rose as well. However towards the end of the week, the index rose by 0.3%. This is after the investors got a revised GDP figure for the fourth quarter of 2013. It was a downward statement from 3.2% to 2.4%, while analysts were expecting 2.5%. A lot of market-watchers attributed the slip to the cold weather and did not give the impression that they were affected by the slight miss (Thalman, 2014).

According to Dzombak (2014), the increase towards the end of this week is attributed to the information released on the U.S economic performance. It became known that the unemployment statistics showed an improvement meaning that new jobs were created. This means that the economy is experiencing growth even if it is at a slow pace. It is crystal clear that the market reacts promptly to the flow of information.

The portfolio’s returns are currently 5.11% from last week’s 3.43% on the value of the portfolio. The portfolio performed fairly well considering the fact that all stocks went up with the exception of Ceaser Entertainment Corp., Best Buy Company Inc. and R.R. Donnelley & Sons Company (RRD) which showed very slight changes nonetheless. On comparing the current stock performance with last week’s, we see that the best improved stocks are Icahn Enterprises L.P, Delta Air Lines and Supervalu in that particular order. Most of the other stocks in the portfolio improved marginally.

Icahn Enterprises L.P. increased its stock value by 6.43% as at 2pm on March 6th as compared to last week’s performance. Early this week, the company disclosed its fourth quarter and full year 2013 financial results. Icahn Enterprises L.P. realized revenue amounting to $4.9 billion during the last quarter. In a statement released by Mr. Icahn, he expresses his pleasure in the performance of the company and attributes it to the power of activist strategy in investment funds and operating companies. The positive outlook was the reason the distribution was increased by twenty percent.

Late last week, Delta Air Lines was becoming the first among the three biggest airlines in the United States to base rewards on what a passenger pays for a ticket, not the number of miles flown. This has been received with mixed reaction amongst the investors. Adding to the investor’s reaction is the news that New York will experience a winter storm early next week. Flights were expected to be grounded or cancelled. The poor state of the weather would have caused loss of millions of dollars in revenue which will cause anxiety in the market and resultantly have a negative influence in the performance of the stock.

Early this week however, the company issued a report stating that its unit revenue during the month of February soar up by 4% even after approximately eight thousand flights were cancelled as a result of bad weather affecting the travel industry. The explanation behind it is that the company’s operating team came up with a measure that would enable the company recapture its revenue from flights that would otherwise been cancelled. By doing so, Delta Air Lines beat its peers in the industry by proving to be more efficient (Weinberg, 2014). The gain of 5.86% is as a result of the good job done by the company and the confidence investors have over management.

Supervalu has been cutting costs by shutting down up to 900 poorly performing stores and lowering interest rates on its one and a half billion dollar loan. The results of these measures are evident in the successful returns the company is making in order to reduce its debt tranche that amounts close to three billion dollars. Peers like Safeway are also closing its stores and the Supervalu may likely view this as a good opportunity especially since the company is looking forward to expanding into profitable markets (Singh, 2014).The investors are confident that the management of the firm will have a positive impact in the value of the stock.

The Nevada Gaming Control Board released statistics for the state's fundamental gambling industry for the month. Gaming revenues from casinos on the Las Vegas Strip summed up to less than half a billion dollars. This represents a decline of 1.4% on a year-over-year basis. Such performance is daunting taking into account that January is a popular month due to New Year's Eve festivities and other special events. In spite of the downbeat news, shares of gaming companies active in the state are generally holding up fairly well (Volkman, 2014). Investors in the stocks of Caesars Entertainment Corp may have been shaken up a bit by such information as they would have viewed it as bad news.

Furthermore, it has been made known that Japan may be the next best gaming opportunity destination. As much as Caesars Entertainment Corp may want to invest in Japan, it is currently facing liquidity problems since the company is in big debts in the amount of billions of dollars (Hoium, 2014). This would explain the slight drop in performance in the stock as most investors would want to shed such stocks from their portfolios if the trend persists.

The market news saw Best Buy Co. Inc. stocks decrease by $1.86 in comparison to last week’s value. The stocks of the electronics retailer continued to rise a day after posting a fourth-quarter profit that topped Wall Street expectations. The company profits margin dropped to about 20 percent in domestic and international markets. Since then, the performance of the stock has been declining gradually.

The decreased sales are blamed on the bad weather and also the weak holiday season. Nevertheless, according to Seitz (2014), Sony has intentions to shut down twenty of its thirty ones retail stores in the United States. The investors in Best Buy Co. Inc may probably view this information as good news since consumers loyal to the Sony brand and its electronics will now have to rely on Best Buy to purchase such products in the areas affected by Sony’s stores to be closed.

Moreover, Best Buy identified an area that could stream in additional revenue. The avenue approached is such that manufactures showcase their products in the floor space created by the electronics retail store as a means to advertise. The company showcases Apple products and intends to do the same for Sony. It should be noted that Best Buy also issued a report stating that it opened two thousand stores within a store, out of which six hundred were Microsoft Windows stores and the rest being Samsung’s. Best Buy Chief Executive Officer, Hubert Joly, is at the moment targeting $1 billion in annual cost cuts. This would be very effective as it would see the company compete with other big-box and online retailers. This could be viewed by investors that the performance of the stock is likely to pick up and improve soon.

The data chart below shows the previous week’s performance as at 2pm on 6th March.

https://finance.yahoo.com/portfolio/pf_3/view/v2

References

Best Buy and Deckers are Big Market Movers. Retrieved from http://finance.yahoo.com/news/best-buy-deckers-big-market-224514524.html

Choudhry, M. (2010). Capital Market Instruments: Analysis and Valuation. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Dzombak, D. (2014, March 6). Dow Jones Today Up as S&P 500 Hits All Time High. Retrieved from http://www.fool.com/investing/general/2014/03/06/dow-jones-today-up-as-sp-500-hits-all-time-high.aspx

Hoium, T. (2014, March 5). Japan Is the Next Hotly Contested Gaming Market. Retrieved from http://www.fool.com/investing/general/2014/03/05/japan-is-the-next-hotly-contested-gaming-market.aspx

Seitz P. (2014, February 28). Best Buy Could Benefit from Sony Stores Closing. Retrieved from http://news.investors.com/022814-691676-best-buy-could-benefit-from-sony-store-closings.htm?ven=yahoocp&src=aurlled&ven=yahoo

Singh, A. (2014, March 3). Impressive Turnaround Efforts Make SUPERVALU a Good Investment. Retrieved from http://www.fool.com/investing/general/2014/03/03/impressive-turnaround-efforts-make-supervalu-a-goo.aspx

Thalman, M. (2014, March 1). Why the Dow Rose 218 Points Last Week. Retrieved from http://www.fool.com/investing/general/2014/03/01/why-the-dow-rose-218-points-last-week.aspx

Weinberg, A. L. (2014, March 5). Bad Weather? No problem for Delta Air LinesIinc . Retrieved from http://www.fool.com/investing/general/2014/03/05/bad-weather-no-problem-for-delta-air-lines-inc.aspx

Volkman, E. (2014, February 28). Las Vega’s Gambling Revenue Drop. Retrieved from http://www.fool.com/investing/general/2014/02/28/las-vegas-gambling-revenues-drop-14-in-january.aspx