New Week, Same Uncertainty

Charles Schwab: On the Market

Posted: 2/8/2016 4:15 PM ET

New Week, Same Uncertainty

U.S. equities added to the solid losses seen last week, as the persistent global growth anxiety continues to be exacerbated by heightened Fed rate hike uncertainty. Meanwhile, the relentless decline in crude oil prices continued to pressure sentiment, and financial and consumer discretionary stocks saw solid losses. Treasuries rallied, along with gold, while the U.S. dollar was lower.

The Dow Jones Industrial Average (DJIA) fell 178 points (1.1%) to 16,027, the S&P 500 Index dropped 27 points (1.4%) to 1,853, and the Nasdaq Composite tumbled 79 points (1.8%) to 4,284. In heavy volume, 1.4 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.20 to $29.69 per barrel and wholesale gasoline lost $0.03 to $0.96 per gallon, while the Bloomberg gold spot price jumped $17.08 to $1,190.48 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 96.63.

Hasbro Inc. (HAS $75) reported 4Q earnings-per-share (EPS) of $1.39, above the $1.30 FactSet estimate, as revenues rose 13.0% year-over-year (y/y) to $1.5 billion, compared to the expected $1.4 billion. HAS' product sales out of its boys, games and preschool categories grew solidly y/y, more than offsetting a decline for its girls segment. The company increased its quarterly dividend by 11.0% to $0.51 per share. Shares were higher. 

Cognizant Technology Solutions Corp. (CTSH $54) finished lower amid the continued selloff in the tech sector and as the consulting and business process outsourcing services company issued 1Q and full-year EPS guidance that missed expectations. The disappointing outlook accompanied its 4Q earnings report, in which it topped profit projections and matched revenue forecasts.

Chesapeake Energy Corp. (CHK $2) fell sharply after the natural gas company said it has no plans to pursue bankruptcy and is aggressively seeking to maximize value for all shareholders. The comments come in response to reports suggesting the company retained a restructuring law firm.

Economic calendar quiet, bond yields continue to drop

Treasuries finished higher, while the U.S. economic calendar was void of any major releases today. The yield on the 2-year note dropped 6 basis points (bps) to 0.66%, while the yield on the 10-year note declined 9 bps to 1.74%, and the 30-year bond rate fell 10 bps to 2.57%. 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.

The economic calendar will get rolling tomorrow with the NFIB Small Business Optimism Index, forecasted to show a slight downtick to a level of 94.5 for January from the 95.2 posted in December. As well, investors will get the JOLTS Job Openings report, a measure of unmet demand for labor, expected to indicate 5.41 million jobs were available to be filled during December, a tad lower than the 5.43 million the month prior, while wholesale inventories will round out the day, with economists anticipating a 0.2% month-over-month (m/m) decline in December following the 0.3% m/m decrease in November.

However, amid heightened uncertainty regarding further Fed rate hikes and the recession drumbeat picking up tempo, Friday's January retail sales and preliminary February University of Michigan Consumer Sentiment Index reports will headline this week's U.S. economic calendar and shed some light on the all-important consumer, while Federal Reserve Chairwoman Janet Yellen will deliver her semi-annual monetary policy testimony on Wednesday and Thursday in front of Congress.

Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Cutting Through the Energy Noise, positives for consumers include, reduced debt loads, continued improving job market and signs wages are starting to increase. Also, energy costs have fallen, which boosts the amount consumers have to spend—although to what extent has been somewhat disappointing to this point. However, consumers seem to be cautious and Americans’ willingness to take on consumer debt appears to have waned. Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Life in the Fast Lane: Look Through the Windshield, Not the Rear View Mirror, recession risk is up, but beware of the cacophony of apocalyptic forecasts. Focus more on leading indicators than lagging indicators. Read both articles at www.schwab.com/marketinsight, and follow Schwab and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

Europe sees pressure, Asia mixed as global markets remain skittish 

European stocks finished broadly lower, with financials and technology issues leading to the downside, as the global markets remain volatile on growth/currency concerns, continued oil volatility, and flared-up uncertainty regarding the trajectory of further U.S. Fed rate hikes this year. For more, see the Schwab Center for Financial Research's article Market Volatility: What Investors Should Know, The euro overcame early losses late in the session and ticked higher versus the U.S. dollar, while bond yields in the region were mixed. In economic news, eurozone investor confidence fell more than expected for this month, French January business sentiment came in stronger than projected, and growth in Spanish industrial output slowed in December.

Stocks in Asia finished mixed with the global markets remaining skittish, exacerbated by Friday's mixed U.S. employment report. However, volume was lighter than usual, with markets in mainland China, Hong Kong, and South Korea closed for the lunar new year holidays. Japanese equities rebounded from recent pressure as the yen lost ground during the trading session to the U.S. dollar in the wake of Friday's labor report. For more on the currency markets see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Currency Wars: Is a Weaker Currency Good or Bad?, at www.schwab.com/oninternational, and be sure to follow us on Twitter: @schwabresearch. Australian securities finished flat as weakness in technology and financial stocks was offset by strength in basic materials and oil & gas issues, while Indian stocks fell amid weakness in technology and consumer-related companies, ahead of the release of the country's 4Q GDP report. India's 4Q GDP grew at a 7.3% y/y pace, from the upwardly revised 7.7% expansion posted in 3Q, and compared to estimates of a 7.1% increase. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at India in his article, India Becomes World's Fastest Growing Economy: What Investors Need to Know, at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Items on tap for tomorrow's international economic calendar include retail sales and trade balance from the U.K., and industrial production and the trade balance from Germany.

Schwab Center for Financial Research - Market Analysis Group

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