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Friday, February 12, 2016

Stock Rally Rounding out the Week

On the Market
Posted: 2/12/2016 1:15 PM ET

Stock Rally Rounding out the Week

U.S. stocks are gaining solid ground and European equities jumped, with the recently-battered global financial sector bouncing back and crude oil prices rallying, ahead of the long Presidents' Day holiday weekend. Also, a stronger-than-expected domestic retail sales report is buoying sentiment. Treasuries are lower, along with gold, while the U.S. dollar is gaining ground.

At 12:49 p.m. ET, the Dow Jones Industrial Average and the S&P 500 Index are gaining 1.5%, while the Nasdaq Composite is increasing 1.3%. WTI crude oil is rallying $2.92 to $29.13 per barrel, Brent crude oil is rebounding $2.72 to $32.78 per barrel, and wholesale gasoline is jumping $0.09 at $1.03 per gallon. Elsewhere, the Bloomberg gold spot price is declining $10.70 to $1,236.00 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is up 0.5% at 96.03.

Activision Blizzard Inc. (ATVI $28) reported 4Q earnings-per-share (EPS) ex-items of $0.83, below the $0.86 FactSet estimate, as revenues declined 4.3% year-over-year (y/y) to $2.1 billion, versus the projected $2.2 billion. The company issued 1Q profit guidance that came in below expectations, while its 2016 earnings outlook topped forecasts. Also, ATVI announced a 13.0% increase of its quarterly dividend to $0.26 per share, and plans to repay up to $1.5 billion of the company's outstanding debt. Shares are falling.

Groupon Inc. (GRPN $3) reported 4Q EPS ex-items of $0.04, versus the expected flat reading, with revenues rising 3.8% y/y to $917 million, above the projected $846 million. GRPN reaffirmed its 2016 revenue outlook, while raising its operating profit guidance, reflecting current foreign exchange rates, expected marketing investments, continued progress in increasing shopping margins, and a reduction of its international footprint. GRPN is moving sharply higher.

Dow member JPMorgan Chase & Co. (JPM $57) is gaining solid ground amid the bounce-back for the global financial sector, as well as the announcement that Chief Executive Officer Jamie Dimon purchased 500,000 shares of the company's stock.

January retail sales top forecasts, consumer sentiment dips

Advance retail sales (chart) for January were up 0.2% month-over-month (m/m), above the Bloomberg forecast of a 0.1% increase, while December's 0.1% dip was adjusted to a 0.2% gain. Also, last month's sales ex-autos rose 0.1% m/m, versus expectations of a flat reading, while the 0.1% decline in the previous month was revised to a 0.1% increase. Sales ex-autos and gas were higher by 0.4% m/m for January, versus the 0.3% increase that was anticipated, while December's flat reading was revised to a rise of 0.1%. Finally, the retail sales control group, a figure used to help calculate GDP, advanced 0.6%, well above the projected 0.3% gain, and a rebound from the prior month's unrevised 0.3% decline.

Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, recession risk is elevated, just not glaring yet. Although the U.S. economy remains bifurcated, the more heavily-weighted services sector is hanging in there. Overall, the leading economic indicators have not rolled over to the extent typically seen before recessions. Read more at and follow Liz Ann on Twitter: @lizannsonders.

The preliminary University of Michigan Consumer Sentiment Index (chart) declined to 90.7 this month from 92.0 in January, and compared to estimates calling for 92.3. The economic conditions and outlook components both declined. The 1-year inflation projection remained at 2.5%, while the 5-10 year inflation outlook dropped to 2.4% from 2.7%.

The Import Price Index (chart) declined 1.1% m/m for January, compared to the projection of a 1.5% drop, and December's 1.2% decline was revised to a 1.1% fall. Y/Y, prices were lower by 6.2%, versus the 6.8% forecasted drop, and following December's upwardly revised 8.1% fall.

Business inventories (chart) rose 0.1% m/m in December, matching forecasts, and November's 0.2% decline was revised to a 0.1% dip. Sales declined 0.6% m/m, and the inventory-to-sales ratio—the time it would take to deplete inventories at the current sales pace—ticked higher to 1.39 from November's 1.38 pace.

Treasuries are lower in afternoon action, with the yield on the 2-year note rising 3 basis points (bps) higher to 0.68%, the yield on the 10-year note gaining 8 bps to 1.73%, and the 30-year bond rate advancing 9 bps to 2.59%. For more on the volatile bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016. Also, check out the Schwab Center for Financial Research's article Market Volatility: What Investors Should Know. Read both at and follow us on Twitter: @schwabresearch.

Please Note: All U.S. markets will be closed on Monday in observance of the Presidents' Day holiday.

Europe rebounds from yesterday's pounding

European equities traded higher, with oil & gas issues recovering somewhat from their recent rout as crude oil prices rallied sharply. Also, financials were one of the best performers after being pummeled as of late on heightened credit concerns and exacerbated worries over the impact of a low interest rate environment on profits. Commerzbank AG (CRZBY $9) jumped sharply after being caught up in the recent banking sector rout, as the German bank said it returned to a profit. Also, shares of Deutsche Bank AG (DB $17) rallied after confirming a report earlier this week that the company will conduct a bond buyback, in the amount of about $5.4 billion. Another standout winner was Rolls-Royce Holdings PLC. (RYCEF $9), which surged after the U.K. aircraft engine maker's stronger-than-expected earnings overshadowed its dividend cut.

In economic news, preliminary eurozone 4Q GDP grew at a 0.3% quarter-over-quarter pace, matching estimates and the expansion posted in 3Q. Germany's GDP grew in line with forecasts, while Italy's output missed expectations. German consumer price inflation fell in January, while French 4Q wages and nonfarm payrolls rose, and U.K. construction output in December rose at a smaller-than-expected pace. Finally, eurozone industrial production unexpectedly dropped in December. The euro traded lower versus the U.S. dollar and bond yields in the region were mixed.

The U.K. FTSE 100 Index was up 3.1%, France's CAC-40 Index and Germany's DAX Index rose 2.5%, Italy's FTSE MIB Index rallied 4.7%, Spain's IBEX 35 Index advanced 2.3%, and Switzerland's Swiss Market Index traded 2.1% higher.

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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