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Friday, January 22, 2016

  Schwab Market Update

Posted: 1/22/2016 9:00 AM ET
Stocks Try to Close out Week with Back-to-Back Gains

U.S. stocks are moving solidly higher in early action for a second-straight session, with Asian markets rallying and Europe extending yesterday's jump. Rising expectations of further global monetary policy stimulus measures are supporting sentiment, along with the continued recovery in crude oil prices. The Street is digesting mixed quarterly earnings reports, while reads on domestic housing sales and manufacturing activity are due out after the opening bell. Treasuries are declining, along with gold, while the U.S. dollar is higher.

As of 8:53 a.m. ET, the March S&P 500 Index future is 26 points above fair value, the DJIA future is 186 points above fair value, and the Nasdaq 100 Index future is 70 points north of fair value. WTI crude oil is jumping $1.43 to $30.96 per barrel, Brent crude oil is rallying $1.73 to $30.98 per barrel, and the Bloomberg gold spot price is trading $5.34 lower to $1,095.86 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is up 0.4% at 99.41.

Dow component General Electric Co. (GE $29) reported 4Q earnings-per-share (EPS) of $0.52, above the FactSet estimate of $0.49, with revenues rising 1.0% year-over-year (y/y) to $33.9 billion, below the projected $35.9 billion. GE reaffirmed its 2016 profit outlook.

Starbucks Corp. (SBUX $59) posted fiscal 1Q profits ex-items of $0.46 per share, one penny above expectations, with revenues increasing 12.0% y/y to $5.4 billion, roughly in line with forecasts. Global same-store sales grew 8.0% y/y, versus the expected 6.9% increase, led by stronger-than-forecasted sales in its Americas segment, which more than offset softer-than-anticipated growth in its China/Asia Pacific unit, as well as its Europe, Middle East and Africa region. SBUX issued 2Q EPS guidance that slightly missed expectations, while reiterating its full-year outlook.

Dow member American Express Co. (AXP $63) reported 4Q EPS ex-items of $1.23, compared to the estimated $1.20, with revenues declining 8.0% y/y to $8.4 billion, roughly in line with forecasts.

Dow component Boeing Co. (BA $123) announced that it will lower the production rate on the 747-8 program to match supply with near-term demand in the cargo market, and will recognize a $569 million after-tax charge in 4Q. BA added that global air passenger traffic growth and airplane demand remain strong, but the air cargo market recovery that began in late 2013 has stalled in recent months.

Host of data due out after the opening bell

Treasuries are lower in early action, while the U.S. economic calendar will offer no major releases before the opening bell. The yields on the 2-year and 10-year notes are rising 3 basis points (bps) to 0.87% and 2.06%, respectively, while the 30-year bond rate is gaining 2 bps to 2.83%. Schwab's Chief Fixed Income Strategist, Kathy Jones, offers our Fixed Income Outlook 2016: New Year, Same Road Map, at, and follow Kathy on Twitter: @kathyjones.

Later this morning, the economic week will conclude with the release of December existing home sales, projected to rise 9.2% month-over-month (m/m) to an annual rate of 5.2 million units, rebounding from November's drop to 4.8 million units. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Sticking with Financials and Technology, 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, and follow Schwab on Twitter: @schwabresearch.

Also, we will get the preliminary Markit Manufacturing PMI Index for January, expected to dip to 51.0 from December's 51.2 level, with a figure above 50 denoting expansion, as well as the Index of Leading Economic Indicators (LEI), forecasted to decline 0.2% m/m in December, after rising 0.4% in November.

Europe extends yesterday's ECB-fueled rally

European equities are rallying broadly for a second-straight session in afternoon action, with oil & gas stocks leading the way as crude oil prices are extending yesterday's advance. The Stoxx Europe 600 Index is on pace for its best two-day gain since October 2011, per Bloomberg, and to finish the week higher for the first time this year. Sentiment remains buoyed by yesterday's comments from European Central Bank (ECB) President Mario Draghi that suggested an expansion of further stimulus measures could come as early as its next meeting in March. The ECB's sooner-than-expected consideration of further stimulus measures comes as inflation was seen as continuing to be weaker than expected, downside economic risks were said to have increased, and as the global markets have been in turmoil to begin 2016, as discussed by the Schwab Center for Financial Research in Market Volatility: What Investors Should Know. Read more at and follow Schwab on Twitter: @schwabresearch. In economic news, Markit's preliminary Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—declined to 53.5 for January, from 54.3 in December, and compared to the dip to 54.1 that was expected. However, a reading above 50 denotes continued expansion in business activity. The euro is trading lower versus the U.S. dollar and bond yields in the region are mixed.

The U.K. FTSE 100 Index is up 2.1%, France's CAC-40 Index is gaining 3.4%, Germany's DAX Index is rising 2.2%, Spain's IBEX 35 Index is jumping 3.6%, Switzerland's Swiss Market Index is advancing 2.9%, and Italy's FTSE MIB Index is increasing 2.3%.

Asia follows U.S. and Europe higher

Stocks in Asia finished broadly higher on the heels of solid gains in the U.S. and Europe yesterday as crude oil prices recovered and the European Central Bank hinted at the possibility of expanded stimulus measures at its next meeting in March. Japanese stocks led the way, with the Nikkei 225 Index jumping 5.9% as the yen weakened and reports suggested the Bank of Japan is considering further monetary policy stimulus. The Nikkei 225 Index rebounded from sharp losses this week that took the index into bear market territory. China's Shanghai Composite Index gained 1.3% and the Hong Kong Hang Seng Index advanced 2.9%, amid strength in the energy sector and as the government signaled it will provide support to try to combat overcapacity in the steel and coal industries, per Bloomberg. Australia's S&P/ASX 200 Index rose 1.1%, South Korea's Kospi Index advanced 2.1%, and India's S&P BSE Sensex 30 Index moved 2.0% to the upside.

Schwab Center for Financial Research - Market Analysis Group

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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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