The Dow's Worst Loss in Months, Record Highs, Big Mergers, and the Week in Review

Five things you need to know on July 21.

Jul 19, 2014 at 7:00PM

Like that hefty lobster roll you wish you were sinking your teeth into right about now, last week was packed with market-moving events: big bank earnings, all-time stock highs, and the Dow's worst loss in months on geopolitical developments.

1. Stock market winner ...
It's hard to award a "winner" status to a company that's in firing mode -- but that's just what investors did last week. Shares of Microsoft (NASDAQ:MSFT) popped on news from CEO Satya Nadella that the company was going through with its largest layoff ever. And of the 18,000 workers whom Microsoft plans to cut, a hefty 12,500 are from Nokia.

Keep in mind that Nokia was acquired by the aging tech giant Microsoft last year by the then-CEO Steve Ballmer. The idea was that Microsoft would be using them to lead its development of a Microsoft mobile-phone unit -- but that got about as far as the Mets in the MLB postseason.
 
So why did the stock jump? Is Wall Street just a heartless beast? We can't really answer the second question for you, but as for the first, we can say that investors were excited by the new CEO's aggressive move to correct an issue that he had not created himself. Nokia was weighing on the company's profitability, and Nadella was ready to make the necessary move in the eyes of his shareholders.

2. ... And stock market loser
We're all for bingeing on a Dorito's Locos taco -- but if we were shareholders of Yum! Brands (NYSE:YUM), we'd have multiple reasons to have upset stomachs. In its Wednesday earnings report, the owner of fast-food chains Taco Bell, KFC, and Pizza Hut announced that revenue last quarter rose 10% from last year to $3.2 billion, just slightly below the $3.24 billion investors were expecting.

Here's the issue -- it's the slices that aren't adding up. For the Pizza Hut chain in Yum!'s fast-food portfolio, sales fell 3% over the past three months, mostly from additional fast-casual competition. Domino's has been introducing lower prices, while Papa John's has been introducing new products (we're looking at you, 8-inch cookie pizza). Plus Chipotle and Buffalo Wild Wings have been investing in their own more craft-like pizza chains.

There was one bright side for the Yum! faithful. Over 2013, the company saw sales drop in China on worries about bird flu scares -- that's never good when half your revenues come from China. But Yum!'s sales across the Pacific have rebounded, jumping 15% last quarter -- and now Yum!'s management plans to go ahead with its initiative to open 700 new restaurants there next year.

3. Big week for bigger bank earnings
Banks beat Wall Street's expectations, while risky stock and bond trading revenues fell and reliable Wealth Management revenues rose. Despite Citibank's (NYSE:C) $7 billion settlement with the government over allegations that it misled investors pre-financial crisis, it still pulled in $181 million in earnings. Goldman Sachs' (NYSE:GS) revenue rose 6% to $9.13 billion, while Morgan Stanley (NYSE: MS) posted $8.5 billion. And investors were more interested in JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon's health than in its healthy $25 billion in revenue.


4. Big merger-and-acquisition news
Swiss chocolatier Lindt & Sprungli melted away $1.4 billion for America's Russell Stover, for a combined billion-calorie dessert company projecting $1.5 billion in sales next year. Brace your lungs, because tobacco giant Reynolds American lit up $27.4 billion for smaller Lorillard to challenge Philip Morris owner Altria Group. And Time Warner rejected an $80 billion bid from Rupert Murdoch's 21st Century Fox, which was after the lucrative HBO and Warner Brothers movie studio.

5. The Fed's "Beige Book" was pretty optimistic
To give bored finance lovers a bit of light reading, the Federal Reserve released its eight-times-per-year "Beige Book," which describes the state of the U.S. economy before the central bank's upcoming policy meeting. So how do we look? We're lookin' better -- according to data from the 12 nationwide Fed districts, the economy has been growing at a "moderately strong pace." And investors were happy to hear that the Fed's stimulus policies have not created additional inflation.

As originally published on MarketSnacks.com

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Jack Kramer and Nick Martell have no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, Domino's Pizza, and Goldman Sachs and owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, Citigroup, JPMorgan Chase, Microsoft, and Papa John's International. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

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