Charles Schwab: On the Market
Posted: 1/19/2016 4:15 PM ET
Shrugging off positive trading sessions from their foreign counterparts, U.S. stocks pared early solid gains to finish mixed, as initial support from a rally in China on optimism of further stimulus measures from the government eroded. Pressure on energy stocks continued, as early gains in crude oil prices dissipated. Meanwhile, news on the equity front was mixed, with Morgan Stanley and Dow member UnitedHealth Group both topping estimates, but Bank of America and Tiffany & Co. warned of future growth. Treasuries were nearly unchanged, the U.S. dollar was modestly higher, while gold was lower.
The Dow Jones Industrial Average (DJIA) rose 28 points (0.2%) to 16,016, the S&P 500 Index added a point (0.1%) to 1,881, while the Nasdaq Composite fell 11 points (0.3%) to 4,477. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.82 to $29.57 per barrel, but wholesale gasoline gained $0.01 to $1.03 per gallon, while the Bloomberg gold spot price declined $2.25 to $1,087.43 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 99.09.
Bank of America Corp. (BAC $14) reported 4Q earnings-per-share (EPS) $0.28, one penny above the FactSet estimate, as revenues rose 4.3% year-over-year (y/y) to $19.5 billion, versus the expected $20.0 billion. The company saw solid growth in trading revenue, with fixed income coming in stronger than projected, while the company also saw lower expenses. Shares gave up early gains and were solidly lower as the company's Chief Financial Officer warned on a call with analysts that revenue growth will be "challenging," even as the economy improves, per Bloomberg.
Morgan Stanley (MS $26) posted 4Q EPS ex-items of $0.43, north of the estimated $0.33, with revenues growing 4.3% y/y to $7.9 billion, compared to the forecasted $7.6 billion. Equity trading revenues topped expectations, while fixed-income trading fell more than projected. Shares of MS were slightly lower.
Dow member UnitedHealth Group Inc. (UNH $113) announced 4Q profits ex-items of $1.40, exceeding the $1.25 that was expected, as revenues rose 30.5% y/y to $43.6 billion, topping the projected $43.2 billion. The company reaffirmed its full-year 2016 guidance. Shares were higher.
Tiffany & Co. (TIF $64) reported a 5.0% y/y decline in same-store sales over the two-month holiday period that ended December 31, negatively impacted by the strong U.S. dollar and weak tourist spending in a number of markets. TIF lowered its 2015 guidance and warned that 2016 will likely see "minimal growth" due to the aforementioned challenges. Shares of TIF were decisively lower.
Homebuilder sentiment slightly below expectations
The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month remained at December's downwardly revised 60 figure from the originally-reported 61 level, where the Bloomberg estimate had called for it to remain. Builder confidence remained above 50, which separates good and poor conditions, for the nineteenth-straight month. The NAHB noted, "After eight months hovering in the low 60s, builder sentiment is reflecting that many markets continue to show a gradual improvement, which should bode well for future home sales in the year ahead." The NAHB added that the economic outlook remains promising, as consumers regain confidence and home values increase, which will help the housing market move forward.
With sentiment remaining solid, tomorrow, we will get a look at housing construction activity for December, with the release of housing starts and building permits (economic calendar). Starts are projected to rise 2.3% month-over-month (m/m) to an annual rate of 1,200,000 units, while permits are forecasted to drop 6.4% to a rate of 1,200,000 units. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, has an outperform rating on the financial sector in his latest Schwab Sector Views: Cautionary Note, noting that although demand for houses has shown signs of weakness recently, household formation has been increasing (according to data compiled by Bloomberg) and interest rates remain low. This should bolster mortgage demand. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.
Treasuries finished nearly unchanged, as the yield on the 2-year note ticked 1 basis point (bp) higher to 0.87%, while the yields on the 10-year note and the 30-year bond were flat at 2.05% and 2.82%, respectively. Schwab's Chief Fixed Income Strategist, Kathy Jones, offers our Fixed Income Outlook 2016: New Year, Same Road Map, at www.schwab.com/marketinsight, and follow Kathy on Twitter: @kathyjones.
In addition to tomorrow's release of housing data, investors will also get the Consumer Price Index (CPI), with economists expecting a flat reading and a 0.2% m/m increase for the headline and core rate, respectively, matching the figures posted in November, while MBA Mortgage Applications will also be reported.
Europe chips away at dismal start to year, Asia mostly higher
European equities finished broadly higher, bolstered by a rally in China on the heels of some lackluster economic data, which boosted expectations of further government stimulus measures. However, stocks came off of the best levels of the day, with oil & gas stock gains being pared as crude oil prices turned mixed. The Stoxx Europe 600 Index rebounded somewhat from its recent tumble to begin the year, which took the index into bear market territory at the end of last week, as global market volatility has ramped up. The Schwab Center for Financial Research offers a look at Market Volatility: What Investors Should Know, and Schwab's Chief Investment Strategist, Liz Ann Sonders provides analysis on what may be ahead for the U.S. markets after the worst start to the year in history in her article, Changes: Turn and Face the Strange (Market). Read both articles at www.schwab.com/marketinsight and follow Schwab and Liz Ann on Twitter: @schwabresearch and @lizannsonders. The euro turned modestly higher versus the U.S. dollar, while bond yields in the region were mixed. In economic news, German investor confidence fell for the first time in three months for January, but came in above expectations, while eurozone consumer price inflation came in flat m/m in December. U.K. consumer price inflation unexpectedly ticked 0.1% higher, versus the flat reading that was anticipated.
Stocks in Asia finished higher, with the Chinese yuan remaining stable, while a plethora of Chinese economic data fostered hopes of further stimulus measures from the government. China's 4Q GDP grew at a 6.8% y/y pace—the slowest quarter of growth since March 2009—after expanding by 6.9% in 3Q, where economists had expected the pace to remain. For the year, China's economy grew at a 6.9% pace, in line with expectations, but was down from the 7.3% expansion posted in 2014, and compared to the nation's 7.0% growth target, posting the slowest annual rate of expansion since 1990. However, looking into the report, a bright spot may have been the rise in the country's services sector, which is now the largest component of the economy, per Bloomberg, as the nation transitions to a consumer driven economy. In other Chinese economic news, industrial production rose at a level matching forecasts, while retail sales grew at a slightly smaller-than-expected pace. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at China in his article, Chinese Stock Market Selloff: What's New, What's Not at www.schwab.com/marketinsight and follow Jeff on Twitter: @jeffreykleintop.
The international economic calendar for tomorrow will give investors a look at PPI from Germany and employment data from the U.K.
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.
Early Enthusiasm Erodes
Shrugging off positive trading sessions from their foreign counterparts, U.S. stocks pared early solid gains to finish mixed, as initial support from a rally in China on optimism of further stimulus measures from the government eroded. Pressure on energy stocks continued, as early gains in crude oil prices dissipated. Meanwhile, news on the equity front was mixed, with Morgan Stanley and Dow member UnitedHealth Group both topping estimates, but Bank of America and Tiffany & Co. warned of future growth. Treasuries were nearly unchanged, the U.S. dollar was modestly higher, while gold was lower.
The Dow Jones Industrial Average (DJIA) rose 28 points (0.2%) to 16,016, the S&P 500 Index added a point (0.1%) to 1,881, while the Nasdaq Composite fell 11 points (0.3%) to 4,477. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.82 to $29.57 per barrel, but wholesale gasoline gained $0.01 to $1.03 per gallon, while the Bloomberg gold spot price declined $2.25 to $1,087.43 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 99.09.
Bank of America Corp. (BAC $14) reported 4Q earnings-per-share (EPS) $0.28, one penny above the FactSet estimate, as revenues rose 4.3% year-over-year (y/y) to $19.5 billion, versus the expected $20.0 billion. The company saw solid growth in trading revenue, with fixed income coming in stronger than projected, while the company also saw lower expenses. Shares gave up early gains and were solidly lower as the company's Chief Financial Officer warned on a call with analysts that revenue growth will be "challenging," even as the economy improves, per Bloomberg.
Morgan Stanley (MS $26) posted 4Q EPS ex-items of $0.43, north of the estimated $0.33, with revenues growing 4.3% y/y to $7.9 billion, compared to the forecasted $7.6 billion. Equity trading revenues topped expectations, while fixed-income trading fell more than projected. Shares of MS were slightly lower.
Dow member UnitedHealth Group Inc. (UNH $113) announced 4Q profits ex-items of $1.40, exceeding the $1.25 that was expected, as revenues rose 30.5% y/y to $43.6 billion, topping the projected $43.2 billion. The company reaffirmed its full-year 2016 guidance. Shares were higher.
Tiffany & Co. (TIF $64) reported a 5.0% y/y decline in same-store sales over the two-month holiday period that ended December 31, negatively impacted by the strong U.S. dollar and weak tourist spending in a number of markets. TIF lowered its 2015 guidance and warned that 2016 will likely see "minimal growth" due to the aforementioned challenges. Shares of TIF were decisively lower.
Homebuilder sentiment slightly below expectations
The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month remained at December's downwardly revised 60 figure from the originally-reported 61 level, where the Bloomberg estimate had called for it to remain. Builder confidence remained above 50, which separates good and poor conditions, for the nineteenth-straight month. The NAHB noted, "After eight months hovering in the low 60s, builder sentiment is reflecting that many markets continue to show a gradual improvement, which should bode well for future home sales in the year ahead." The NAHB added that the economic outlook remains promising, as consumers regain confidence and home values increase, which will help the housing market move forward.
With sentiment remaining solid, tomorrow, we will get a look at housing construction activity for December, with the release of housing starts and building permits (economic calendar). Starts are projected to rise 2.3% month-over-month (m/m) to an annual rate of 1,200,000 units, while permits are forecasted to drop 6.4% to a rate of 1,200,000 units. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, has an outperform rating on the financial sector in his latest Schwab Sector Views: Cautionary Note, noting that although demand for houses has shown signs of weakness recently, household formation has been increasing (according to data compiled by Bloomberg) and interest rates remain low. This should bolster mortgage demand. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.
Treasuries finished nearly unchanged, as the yield on the 2-year note ticked 1 basis point (bp) higher to 0.87%, while the yields on the 10-year note and the 30-year bond were flat at 2.05% and 2.82%, respectively. Schwab's Chief Fixed Income Strategist, Kathy Jones, offers our Fixed Income Outlook 2016: New Year, Same Road Map, at www.schwab.com/marketinsight, and follow Kathy on Twitter: @kathyjones.
In addition to tomorrow's release of housing data, investors will also get the Consumer Price Index (CPI), with economists expecting a flat reading and a 0.2% m/m increase for the headline and core rate, respectively, matching the figures posted in November, while MBA Mortgage Applications will also be reported.
Europe chips away at dismal start to year, Asia mostly higher
European equities finished broadly higher, bolstered by a rally in China on the heels of some lackluster economic data, which boosted expectations of further government stimulus measures. However, stocks came off of the best levels of the day, with oil & gas stock gains being pared as crude oil prices turned mixed. The Stoxx Europe 600 Index rebounded somewhat from its recent tumble to begin the year, which took the index into bear market territory at the end of last week, as global market volatility has ramped up. The Schwab Center for Financial Research offers a look at Market Volatility: What Investors Should Know, and Schwab's Chief Investment Strategist, Liz Ann Sonders provides analysis on what may be ahead for the U.S. markets after the worst start to the year in history in her article, Changes: Turn and Face the Strange (Market). Read both articles at www.schwab.com/marketinsight and follow Schwab and Liz Ann on Twitter: @schwabresearch and @lizannsonders. The euro turned modestly higher versus the U.S. dollar, while bond yields in the region were mixed. In economic news, German investor confidence fell for the first time in three months for January, but came in above expectations, while eurozone consumer price inflation came in flat m/m in December. U.K. consumer price inflation unexpectedly ticked 0.1% higher, versus the flat reading that was anticipated.
Stocks in Asia finished higher, with the Chinese yuan remaining stable, while a plethora of Chinese economic data fostered hopes of further stimulus measures from the government. China's 4Q GDP grew at a 6.8% y/y pace—the slowest quarter of growth since March 2009—after expanding by 6.9% in 3Q, where economists had expected the pace to remain. For the year, China's economy grew at a 6.9% pace, in line with expectations, but was down from the 7.3% expansion posted in 2014, and compared to the nation's 7.0% growth target, posting the slowest annual rate of expansion since 1990. However, looking into the report, a bright spot may have been the rise in the country's services sector, which is now the largest component of the economy, per Bloomberg, as the nation transitions to a consumer driven economy. In other Chinese economic news, industrial production rose at a level matching forecasts, while retail sales grew at a slightly smaller-than-expected pace. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at China in his article, Chinese Stock Market Selloff: What's New, What's Not at www.schwab.com/marketinsight and follow Jeff on Twitter: @jeffreykleintop.
The international economic calendar for tomorrow will give investors a look at PPI from Germany and employment data from the U.K.
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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