The market has struggled to stay on course today, and the Dow Jones Industrial Average (DJINDICES:^DJI) beat back earlier losses to rise 35 points into the green as of 2:35 p.m. EDT. Twelve of the blue-chip index's 30 member stocks were in the red. ExxonMobil (NYSE:XOM) has been a particularly tough drag on the Dow so far, falling 1.1% as instability in the Middle East has weighed on energy stocks. Meanwhile, Johnson & Johnson (NYSE:JNJ) shares were down 0.6%. Let's catch up on what you need to know.
Can inflation follow prices?
The broader economic picture started things off on a high note, as new data showed consumer prices jumped by 0.4% in May. While many U.S. consumers are still feeling the pinch from the slow recovery, the gains made in prices are good news for companies that have struggled in the wake of the financial crisis -- and also a positive sign for inflation, which has failed to rise to a sustainable 2% growth level that the Federal Reserve has targeted. Additionally, if inflation continues to increase in the coming months, the upbeat trend could the Federal Reserve to boost interest rates from record lows. Still, the U.S. will need the economy to promote increasing wage growth in the near future as well, especially considering the need for growing consumption in the long-term economic picture.
The international picture is in focus today for the energy sector, particularly for hard-hit ExxonMobil. Investors are keeping a close eye on the ongoing crisis in Iraq, where insurgents push toward the city of Baquba, less than 40 miles from the capital of Baghdad. More than 60% of OPEC oil growth in the coming years is predicted to come from the country in coming years, per The Wall Street Journal. For ExxonMobil and its investors, the turmoil in Iraq, and and growing concerns that violence could spill over to other areas in the region, are a big threat to stable prices and a clear production picture for the future.
Exxon has struggled with production in its recent past. In the last quarter, oil and gas production fell by more than 5% year over year and negatively affected the company's revenue, even as Exxon buoyed its profitability with cost-cutting measures. Fortunately, there is hope on the horizon despite the Middle East trouble: North American energy production has taken off recently, with U.S. output lifting America into the top spot among global oil and gas producers. Exxon alone expects to begin production from 28 new projects by 2017, with major oil sands investments in Canada riding high for the company's future. If the company can make the most out of its North American projects, Exxon can overcome the volatility from the Middle East.
Still, energy investors should keep a watchful eye on developments in the region -- particularly on whether the violence in Iraq and Syria destabilizes the production picture in the region even further.
Elsewhere on the Dow today, Johnson & Johnson has fallen in the wake of Medtronic's (NYSE:MDT) $43 billion purchase of rival medical device maker Covidien. The buy will add significant scale to Medtronic's portfolio and put the company on a better track to compete with Johnson & Johnson in terms of size and -- most importantly -- negotiating leverage with cost-wary hospitals. While Johnson & Johnson and Medtronic focus their core medical device businesses in different areas, with the former's largest niche in orthopedics and the latter's in cardiac devices, Medtronic's purchase of Covidien puts the the buyer in greater contention to challenge J&J's successful surgical products division. While J&J's pharmaceuticals remain its major growth driver for the near future, investors should keep an eye on the emerging battle between these two top medical device producers.
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Dan Carroll has no position in any stocks mentioned. The Motley Fool recommends Covidien and Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson and Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.