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Tuesday, January 12, 2016

Charles Schwab: On the Market
Posted: 1/12/2016 4:15 PM ET
Another Rocky Ride

U.S. stocks ended the day nicely higher, as investors again endured the all-too-familiar rollercoaster ride in today's session, with traders weighing some stability in the Chinese currency markets with the persistent decline in crude oil prices. Treasuries were higher amid the uncertainty and a second-tier economic calendar, while gold was lower and the U.S. dollar gained ground. Alcoa unofficially got 4Q earnings season moving by topping the Street's profit forecasts, while Lululemon Athletica raised its 4Q outlook.

The Dow Jones Industrial Average (DJIA) rose 118 points (0.7%) to 16,516, the S&P 500 Index gained 15 points (0.8%) higher to 1,939, and the Nasdaq Composite jumped 48 points (1.0%) to 4,686. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.97 to $30.44 per barrel, wholesale gasoline lost $0.03 to $1.08 per gallon and the Bloomberg gold spot price declined $3.81 to $1,090.39 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 98.99.

Alcoa Inc. (AA $7) unofficially kicked off 4Q earnings season, posting earnings-per-share (EPS) ex-items of $0.04, above the $0.02 FactSet estimate, with revenues declining 17.8% year-over-year (y/y) to $5.3 billion, roughly in line with forecasts. However, shares traded lower, with FactSet noting some concerns among analysts about what its flat y/y 1Q operating income guidance implies for the rest of the year.

Lululemon Athletica Inc. (LULU $57) raised its 4Q outlook, based on stronger-than-expected same-store sales. The yoga apparel company said it had a "very successful holiday season," with 4Q sales topping expectations and gross margin rates and expenses remaining in line with its estimates. LULU was nicely higher.

Small business optimism ticks higher
The National Federation of Independent Business (NFIB) Small Business Optimism Index for December improved modestly to 95.2 from November's 94.8 level, and versus the Bloomberg forecast calling for a tick higher to 95.0.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 5.43 million jobs were available to be filled in November, versus the downwardly revised 5.35 million openings in October, and versus forecasts of 5.45 million. Within the report, the hiring rate remained at 3.6%, while the total separations rate ticked higher to 3.5% from 3.4%.

Treasuries were higher, as the yield on the 2-year note dipped 1 basis point (bp) to 0.92%, the yield on the 10-year note dropped 6 bps to 2.12%, and the 30-year bond rate fell 8 bps to 2.89%.

While tomorrow's domestic economic calendar will be fairly sparse, it will include one of the week's likely headlining reports: the afternoon release of the Fed's Beige Book—a summary of business activity across the nation used as a tool to prepare for its two-day monetary policy meeting ending January 28, while the other item on the docket is MBA Mortgage Applications.

Europe higher amid some upbeat corporate news, Asia lower again

European equities traded higher, despite some continued volatility in the crude oil markets, while some favorable reports from the equity front helped support sentiment. Stocks shrugged off heightened geopolitical turmoil, exacerbated by news of a suicide bomb blast that killed at least 10 people in the tourist area of Istanbul, with the Turkish prime minister blaming the Islamic State. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers analysis for investors in his article, Geopolitical Risks in 2016: Is Your Portfolio Prepared?, at, and follow Jeff on Twitter: @jeffreykleintop. The euro declined versus the U.S. dollar, and bond yields in the region were mixed. In economic news, U.K. manufacturing and industrial production reports both showed unexpected declines for November, though French business sentiment improved modestly in December.

Stocks in Asia finished mostly to the downside with energy issues remaining hamstrung as the tumble in crude oil prices continued, while festering concerns toward China also posed a headwind to conviction. Japanese equities fell in their return to action following yesterday's holiday, with the yen finishing higher from Friday's levels and as energy stocks found pressure. Australia's markets dipped amid weakness in oil & gas and basic materials stocks, while securities in South Korea declined and Indian equities finished to the downside, ahead of key reads on manufacturing and inflation, with banking stocks seeing some pressure on reports of increased troubled loans. After the closing bell, India's industrial production unexpectedly fell in November, while the nation's consumer price inflation rose more than expected in December. Listing in Hong Kong declined, but mainland Chinese stocks rebounded slightly from yesterday's sharp drop amid some stability in the yuan as the government reportedly intervened in the offshore currency market. The rout in the yuan has contributed to the recent tumble in the global markets and Schwab's Chief Fixed Income Strategist, Kathy Jones, discusses Why the Chinese Currency Decline is Rattling Markets, while the Schwab Center for Financial Research offers its article, Chinese Stock Market Selloff: What's New, What's Not. Read both at, and follow Kathy and Schwab on Twitter: @kathyjones and @schwabresearch.

Economic reports slated for release tomorrow internationally include South Korea's unemployment rate, CPI from France, and industrial production out of the eurozone.

Schwab Center for Financial Research - Market Analysis Group

©2016 Charles Schwab & Co., Inc., Member SIPC. All rights reserved.

Schwab Center for Financial Research ("SCFR") is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.

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