Markets Bounce Off Lows

Charles Schwab: On the Market

Posted: 2/9/2016 4:15 PM ET

Markets Bounce Off Lows

U.S. equities were able to bounce off the lows of the day that came amid continued uneasiness over global growth, and finish near the flatline. However, energy issues again came under solid pressure amid the relentless fall in crude oil prices, while financials also saw losses. Treasuries were mixed and gold was higher, while the U.S. dollar was lower.

The Dow Jones Industrial Average (DJIA) lost 13 points (0.1%) to 16,014, the S&P 500 Index lost just a shade over a point (0.1%) to 1,852, and the Nasdaq Composite fell 15 points (0.4%) to 4,269. 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 declined $1.75 to $27.94 per barrel and wholesale gasoline lost $0.06 to $0.90 per gallon, while the Bloomberg gold spot price inched $0.92 higher to $1,190.15 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 96.04.

Dow member Coca-Cola Co. (KO $43) reported 4Q earnings-per-share (EPS) ex-items of $0.38, one penny north of the FactSet estimate, as revenues declined 8.0% year-over-year (y/y) to $10.0 billion, versus the expected $9.9 billion. KO issued softer-than-expected 2016 earnings guidance. Shares were modestly higher.

CVS Health Corp. (CVS $91) posted 4Q profits ex-items of $1.53 per share, matching forecasts, as revenues increased 11.0% y/y to $41.1 billion, roughly in line with projections. CVS reaffirmed its 1Q and full-year EPS outlooks. CVS finished higher.

Gap Inc. (GPS $23) reported an 8.0% y/y decline in January same-store sales, versus the 3.8% decrease that was projected. Sales declined at its Gap, Banana Republic and Old Navy stores for the month. However, GPS issued 4Q EPS guidance that came in ahead of forecasts. Shares were lower.

Viacom Inc. (VIAB $33) announced fiscal 1Q earnings ex-items of $1.18 per share, in line with expectations, with revenues declining 6.0% y/y to $3.2 billion, below the estimated $3.3 billion. The company said its results reflect challenges operationally as it redesigned itself and adapted to significant industry disruption. Shares finished over 21% lower after accelerating losses following the company's conference call with analysts.

Small business optimism declines, while job openings top forecasts

The National Federation of Independent Business (NFIB) Small Business Optimism Index for January declined to 93.9 from December's 95.2 level, and versus the Bloomberg forecast calling for a dip to 94.5.

Wholesale inventories (chart) dipped 0.1% month-over-month (m/m) in December, compared to the forecast of a 0.2% decline and November's downwardly revised 0.4% decrease. Sales declined 0.3% m/m, compared to the 0.4% decrease that was expected, and the inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at November's 1.32 months level.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 5.61 million jobs were available to be filled in December, versus the downwardly revised 5.35 million openings in November, and versus forecasts of 5.41 million. Within the report, the hiring and total separations rates remained at 3.7% and 3.5%, respectively.

Treasuries were mixed, as the yield on the 2-year note ticking 1 basis point (bp) higher to 0.68%, while the yield on the 10-year note dipped 1 bp to 1.74%, and the 30-year bond rate slid 2 bps to 2.56%. For more on the recently volatile bond markets see our latest video by Schwab's Managing Director of Trading and Derivatives, Randy Frederick, and Fixed Income Director, Collin Martin, CFA, titled, Treasuries Up, Junk Bonds Down, Volatility for All: What's a Bond Investor to Do?, by clicking on the "Insights & Ideas" tab at www.schwab.com/marketinsight and continuing to the "Market Commentary" section. Also, follow us on Twitter: @schwabresearch.

While tomorrow's only economic report will be MBA Mortgage Applications, Federal Reserve Janet Yellen is scheduled to provide her semiannual monetary policy testimony before the House Financial Services Committee on Capitol Hill, which will likely command investors' attention.

Europe and Asia broadly lower

European stocks finished solidly to the downside, with basic materials and oil & gas stocks remaining in selloff mode, but financials lead the drop amid concerns toward the impact on the sector of the persistent heightened global volatility. The global markets have been in turmoil, courtesy of currency/growth concerns, which have contributed to the rout in the commodity markets, and exacerbated by uncertainty regarding the global monetary policy front. For more, see the Schwab Center for Financial Research's article Market Volatility: What Investors Should Know, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch. The euro was higher versus the U.S. dollar and bond yields in the region were mixed. Adding to the dampened sentiment, German industrial production unexpectedly fell for December, along with the nation's exports.

Stocks in Asia finished decisively to the downside, though volume remained light with the lunar new year holidays having markets in mainland China, Hong Kong and South Korea closed. Stocks fell amid the global market turmoil, led by a 5.4% tumble for Japan's Nikkei 225 Index, getting pressure from the persistent rally in the yen, which hit the highest level versus the U.S. dollar since November 2014, as the markets continued to reset U.S. Fed rate hike expectations and grapple with the Bank of Japan's (BoJ) recent decision to adopt a negative interest rate policy (NIRP). Also, the yield on Japan's benchmark 10-year bond posted a decline below zero for the first time as risk aversion ramped up. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the BoJ's decision in his article, Negative Interest Rate Policy Adds Up To Less than Zero for Investors, noting that while the main economic risks of a NIRP have yet to be realized, increasingly negative interest rates may weigh more heavily on the stock market and pose a threat to the drivers of the global economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, offers a look at the currency volatility in her article, Currency Wars: Is a Weaker Currency Good or Bad?.

Australian stocks fell, with technology and financials continuing their selloff, while listings in India dropped, as the heightened global volatility overshadowed the nation's stronger-than-expected 4Q GDP report, reported late yesterday, which showed growth of 7.3% y/y, from the upwardly revised 7.7% expansion posted in 3Q, and compared to estimates of a 7.1% increase.

Tomorrow's international economic calendar will offer consumer price inflation data from Japan, while France, Italy, and the U.K. will post industrial and manufacturing production figures.

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.