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Monday, October 16, 2017

Stocks Advance to Begin the Week

Charles Schwab: On the Market
Posted: 10/16/2017 4:15 PM EDT

Stocks Advance to Begin the Week
U.S. stocks began the week on a positive note as shares continued the recent record run on the heels of an unexpected jump in regional manufacturing activity that coupled with some upbeat Chinese economic data to aid global economic optimism. The advance for stocks may have been limited as market participants await a host of earnings and economic reports expected later this week. Treasury yields and the U.S. dollar ticked higher, while gold was flat and crude oil added to last week's gains. In equity news, Nordstrom traded lower after suspending its search to go private. 

The Dow Jones Industrial Average (DJIA) increased 85 points (0.4%) to 22,957, the S&P 500 Index added 4 points (0.2%) to 2,558, and the Nasdaq Composite gained 18 points (0.3%) to 6,624. In moderate-to-light volume, 695 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.42 to $51.87 per barrel and wholesale gasoline was flat at $1.62 per gallon. Elsewhere, the Bloomberg gold spot price lost $9.00 to $1,294.82 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 93.31.

Nordstrom Inc. (JWN $40) saw heavy pressure after the retailer announced, in light of the difficulty of obtaining debt financing in the current retail environment, it suspended active exploration, for the balance of the year, of the possibility of proposing a transaction to take the company private. The company said it intends to continue its efforts to explore the possibility of making a going private proposal after the conclusion of the holiday season.

Aramark (ARMK $42), a provider of uniforms and food to schools and stadiums, announced agreements to acquire competitors Avendra for about $1.35 billion, as well as AmeriPride Services Inc. for $1.0 billion. ARMK finished little changed.

Regional manufacturing activity jumps to three-year high

The Empire Manufacturing Index showed output from the New York region jumped further into a level depicting expansion (a reading above zero) for October. The index rose to 30.2—the highest since 2014—from September's unrevised 24.4 level, with the Bloomberg forecast calling for a decline to 20.2.

Treasuries dipped, with the yield on the 2-year note rising 4 basis points (bps) to 1.53%, the yield on the 10-year note advancing 3 bps to 2.30%, and the 30-year bond rate ticking 1 bp higher to 2.82%. Bond yields and the U.S. dollar nudged higher and have been choppy as inflation remains in focus and global economic growth remains steady, while global monetary policy uncertainty lingers and the markets continue to grapple with the potential for tax reform.

For more on this backdrop, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, The Waiting: Wage Growth and Inflation Finally Getting in Gear?, and Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, commentary, Inflation May Be The Biggest Question For Investors In 2018.

Moreover, Jeff discusses, How the Shift by Central Banks May Affect the Stock Market, and talks in the video with Vice President of Trading and Derivatives, Randy Frederick, Should a Change in Fed Leadership Matter to Investors?, while Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend, delivers his article, Tax Reform Framework Released, But The Road Ahead Is Long.

Check out these articles and video on the Market Commentary page at Follow our Schwab experts on Twitter: @lizannsonders, @jeffreykleintop, @kathyjones and @randyafrederick.
Tomorrow, the U.S. economic calendar will offer the Import Price Index for September, expected to have increased 0.6% month-over-month (m/m), matching the increase seen in August. Additionally, we'll receive the Fed's September industrial production and capacity utilization report, forecasted to show production increased 0.3% m/m and utilization ticked higher to 76.2%. The housing market will also garner attention with tomorrow's release of the NAHB Housing Market Index, with economists anticipating October's reading to match the 64 posted in September, where the 50 mark represents the point of separation for good versus poor conditions.

Europe mixed, Asia mostly higher 

European equity markets finished mixed amid persistent global economic optimism following some upbeat Chinese and U.S. economic data, while a report showed the eurozone trade surplus widened more than expected. Crude oil prices extended last week's gains to support the energy sector, bolstered by reports of turmoil in parts of Kirkuk, a Kurdish-controlled oil rich province, per Reuters. For more on the energy sector, check out Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest, Schwab Sector Views: Sustainable Energy? on the Market Commentary page at Political uncertainty remained elevated, with Catalonia calling for talks with the Spanish government, which is pressing it to clarify if it declared independence, while U.K.

Prime Minister Theresa May headed to Brussels to talk with European officials as Brexit negotiations remain in a deadlock. For analysis, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Market Commentary page at The euro dipped and British pound was little changed versus the U.S. dollar, while bond yields in the region lost ground.

Stocks in Asia finished mostly higher on the heels of last week's gains in the U.S. to fresh record highs, culminating with a cooler-than-expected consumer price inflation reading that kept accelerated Fed monetary policy tightening concerns in check. Japanese stocks continued to rally, for their tenth-straight session of gains, rising to levels not seen in over two decades, despite some strength in the yen as the U.S. dollar slipped. Mainland Chinese stocks declined and shares trading in Hong Kong advanced following mixed reads on inflation in September, as well as late-Friday's reports that showed lending activity topped forecasts for last month. The markets are awaiting a flood of Chinese economic data this week, headlined by its Q3 GDP report, along with the beginning of the 19th National Congress of the Communist Party. South Korean equities moved higher, while Indian and Australian securities gained ground. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick discuss in the video, Are Investors Underestimating the Stock Market Rally?, on the Market Commentary page at

The international economic docket for tomorrow will yield new motor vehicle sales from Australia, CPI, PPI and house prices from the U.K., investor confidence from Germany and CPI for the Eurozone.

Friday, October 13, 2017

Pottery Barn Rules

Financial Review

Pottery Barn Rules

DOW + 30 = 22,871
SPX + 2 = 2553
NAS + 14 = 6605 (Record)
RUT – 2 = 1502
10 Y – .04 = 2.28%
OIL + .80 = 51.40
GOLD + 10.20 = 1304.30


  • Number of Currencies: 878
  • Total Market Cap: $174,223,159,809
  • 24H Volume: $6,182,297,096

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  Name Symbol Price USD Market Cap Vol. Total Vol. % Price BTC Chg. % 1D Chg. % 7D
  Bitcoin BTC 5,691.3 $94.45B $2.96B 47.93% 1 +0.97% +30.33%
  Ethereum ETH 339.63 $32.22B $1.21B 19.62% 0.059464 +0.64% +9.88%
  Ripple XRP 0.26146 $10.11B $349.29M 5.65% 0.00004604 +0.43% +11.40%
  Bitcoin Cash BCH 325.94 $5.45B $264.35M 4.28% 0.057233 +1.68% -10.28%
  Litecoin LTC 59.220 $3.17B $249.71M 4.04% 0.0104192 +0.54% +14.35%
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The Dow Industrials hit an intraday high but then faded to close just below Wednesday record closing high. The Nasdaq closed at a record high.

For the week, the Dow was up 0.4 percent and the S&P 500 was up 0.2 percent, pushing the Dow and the S&P 500 to a fifth straight week of gains. The Nasdaq rose 0.2 percent for the week, registering a third week of gains.

The consumer price index rose 0.5% in September, the second big increase in a row and the largest in eight months. Three-fourths of the increase in the cost of living stemmed from higher prices at the gas pump as Hurricane Harvey knocked refineries off line. If food and energy are stripped out, core CPI rose a much smaller 0.1%.

The recent energy-driven rise in CPI pushed the yearly rate of inflation to 2.2% from 1.9% to match a six-month high. Yet the more closely followed core rate was unchanged at 1.7% for the fifth month in a row. Adjusted for inflation, hourly wages fell 0.1%. Over the past year “real” wages have risen just 0.7%.

The Social Security Administration announced today that more than 65 million recipients will get a 2% cost-of-living adjustment (COLA) in 2018, after receiving a measly 0.3% boost in 2017 and no increase for inflation in 2016. That means the average benefit for a retired worker will rise by $27 a month to $1,404 in 2018 while the average benefit per retired couple will grow $46 a month to $2,340.

But many recipients will find most or all of that increase eaten up by a jump in the Medicare Part B premiums deducted from their monthly Social Security checks. The COLA affects benefits for more than 70 million U.S. residents, including Social Security recipients, disabled veterans and federal retirees. That’s about one in five Americans.

Retail sales in the U.S. leapt 1.6% in September—the largest increase in 2½ years. The boost came from new autos and trucks. Excluding autos, sales rose 1%. And sales excluding autos and gasoline climbed a smaller but still robust 0.5%. Sales of cars and trucks surged last month after a disappointing August.

Part of the rebound reflected the purchase of replacement vehicles after many were damaged by hurricane-related flooding in Texas and Florida. Home-supply stores also got a bump in the cleanup that followed the storms. Higher gasoline prices lifted sales at gas stations dealers as well. We weren’t buying more gas, just paying more.

The University of Michigan said its consumer sentiment index climbed to a 13-year high of 101.1 in October from 95.1 in September. There were big gains in both the index for current economic conditions, which rose to 116.4 from 111.7, and expectations, which rose to 91.3 from 84.4.

Yesterday we told you that Trump had signed an executive order that makes it easier for individuals and small businesses to buy alternative types of health insurance with lower prices, fewer benefits and weaker government protections.

Yes, the policies would cost less, but they are basically don’t get sick plans. Still, these junk plans sold through associations could siphon young and healthy patients out of the ACA’s exchanges and create an individual-market death spiral. But the order is vague and subject to likely legal challenges.

The administration announced late last night that Trump will immediately halt cost-sharing reductions. These $7 billion in annual subsidies to health insurers allow around 7 million low-income Americans to afford coverage. The ACA requires that insurers subsidize the out-of-pocket health-care costs of some low-income patients, and the government reimburses them — until now. You might think that ending the subsidies to insurers would cut costs, but no.

The move could force the government to dole out almost $200 billion more on health insurance over the next decade. Here’s why: The insurer payouts Trump cut off aren’t the only government funds financing the program. Consumers also can get help with their insurance premiums.

When the insurer subsidies are discontinued, those premiums are pushed higher — and because the consumer subsidies are far bigger than those given to insurers, that’s a costly trade. More than eight in ten individuals who buy Obamacare plans get help paying their premiums directly from the federal government. Those subsidies effectively cap how much people must pay for insurance as a percentage of their income.

Even if premiums climb, people who receive those benefits won’t pay more out of their own pockets. The subsidies are available to people making as much as four times the federal poverty level, or just over $97,000 for a family of four. That means that those most likely to be hurt by the president’s action aren’t low-income people who will still get help with their costs.

Instead, consumers who make too much money to qualify for subsidies will now have to pay a much higher price for their health plans. It all adds up to a hefty bill for taxpayers for as long as the Affordable Care Act is the law of the land. The Congressional Budget Office estimated that ending the cost-sharing payments would increase the U.S. fiscal shortfall by $194 billion over the next decade as subsidy outlays jump.

The uncertainty about what Trump would do has already driven premium prices higher for 2018. Now it’s going to get worse. The fifth year’s open-enrollment season for consumers to buy coverage through ACA exchanges will start in less than three weeks, and insurers have said that stopping the cost-sharing payments would be the single greatest step the Trump administration could take to damage the marketplaces.

Ending the payments is grounds for any insurer to back out of its federal contract to sell health plans for 2018. After the failure to repeal and replace Obamacare, there was some talk about trying to find ways to make the ACA better, but instead, this is intentionally destroying the marketplace. Obamacare had its problems but it was working and he had a chance to fix those problems. Yes, this is a bargaining tactic to try to revive repeal and replace – the problem is the GOP has not been able to come up with a better replacement.

And as a bargaining position, it might not work. The Congressional Budget Office ran projections for just such a possibility. They figure about one million people could lose insurance coverage and the price hikes will be passed along to the federal government. But they also calculate that individual states will figure out schemes to overcome the loss of subsidies.

An unusually broad alliance of interests has urged Congress to appropriate the money, signaling just how disruptive their loss could be. Or Congress could decide to just pay the subsidies. Trump tried to shift blame, tweeting that the Democrats Obamacare is imploding. Not true. Remember the Pottery Barn rules: Yes, the plate you just shattered had some cracks in it. But if you throw it on the ground, the store is going to blame you. You break it, you own it.

Meanwhile, Trump’s campaign against the Iran nuclear deal came to a head today, when he refused to certify that Iran was in compliance with the agreement. Trump stopped short of withdrawing from the deal or of reimposing sanctions on Iran himself, instead sending the deal back to Congress, which will have 60 days to decide whether to re-implement sanctions or alter legislation that covers US participation in the accord.

Bank of America picked up where JPMorgan Chase and Citigroup left off on Thursday when it reported strong core banking numbers and lackluster trading revenue. Bank of America reported earnings per share of 48 cents on revenue of $22.07 billion.

Both numbers topped consensus analyst estimates of 45 cents and $21.97 billion, respectively. BAC also reported a 22 percent decline in fixed-income trading revenue, which dropped to $2.152 billion. Bank trading revenues have suffered in 2017 thanks to historically low volatility in global financial markets.

Wells Fargo reported third quarter revenue that missed expectations Friday. The bank reported: Earnings per share of $1.04, ex-items, vs. the $1.03 a share expected by analysts. Revenue of $21.93 billion, vs. $22.4 billion expected. Revenue fell 2 percent from the same quarter last year. Shares fell more than 3 percent in trading Friday.

The adjusted earnings per share excludes 20 cents of charges related to litigation for a mortgage-related regulatory case from before the financial crisis – not related to the fake account schedule. The litigation cost of $1 billion contributed to an operating loss of $1.3 billion in the third quarter.

BASF has agreed to buy seed and herbicide businesses from Bayer for $7 billion in cash, as Bayer tries to convince competition authorities to approve its planned acquisition of Monsanto. BASF, the world’s third-largest maker of crop chemicals, has so far avoided seed assets and instead pursued research into plant characteristics such as drought tolerance, which it sells or licenses out to seed developers. But Bayer’s $66 billion deal to buy Monsanto, announced in September 2016, has created opportunities for rivals to snatch up assets that need to be sold to satisfy competition authorities.

And finally, for triskaidekaphobics, we finish with a story from Finland, where FinnAir – the airline of Finland – has been routinely flying for several years from Copenhagen Denmark to Helsinki Finland. The one-hour flight had somehow been assigned the Flight number 666. The airport code for Helsinki is HEL.

Well, that left a more than a few travelers nervous, and so FinnAir is changing the Flight number to AY954. Today, Friday the 13th was the last time to catch flight 666 to HEL