Morning in Arizona

Morning in Arizona
Rainbows over Canyonlands - Dave Stoker

The Headline Animator

Wednesday, February 24, 2016

Stocks Bounce Off Lows

    Charles Schwab: On the Market
Posted: 2/24/2016 4:15 PM ET

Stocks Bounce Off Lows

After beginning the day entrenched in negative territory, courtesy of disappointing reads on housing and services sector activity, U.S. equities snapped back to finish the session in the green. Crude oil rebounded slightly following a mixed government oil inventory report, giving oil & gas and basic materials issues a boost, while earnings news was mostly positive. Treasuries were mostly lower and gold posted a nice gain, while the U.S. dollar was flat.

The Dow Jones Industrial Average (DJIA) rose 53 points (0.3%) to 16,485, the S&P 500 Index added 9 points (0.4%) to 1,930, and the Nasdaq Composite gained 39 points (0.9%) to 4,543. In heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.28 to $32.15 per barrel and wholesale gasoline gained $0.06 to $1.28 per gallon, while the Bloomberg gold spot price rose $2.55 to $1,229.40 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was unchanged at 97.50.

Target Corp. (TGT $77) reported 4Q earnings-per-share (EPS) ex-items of $1.52, below the $1.54 FactSet estimate, as revenues decreased 0.6% year-over-year (y/y) to $21.6 billion, south of the forecasted $21.8 billion. However, TGT's 4Q same-store sales rose 1.9% y/y, above the projected 1.4% gain, while it issued 2016 EPS guidance that exceeded expectations. TGT traded higher.

Lowe's Companies Inc. (LOW $69) posted 4Q EPS ex-items of $0.59, matching expectations, with revenues increasing 5.6% y/y to $13.2 billion, versus the estimated $13.1 billion. Quarterly same-store sales grew 5.2% y/y, above the projected 3.6% rise. LOW issued stronger-than-expected guidance for this year. Shares finished lower as its results were compared to yesterday's strong report from Dow member Home Depot Inc. (HD $126).

TJX Companies Inc. (TJX $74) announced 4Q profits of $0.99 per share, above the forecasted $0.94, as revenues increased 8.0% y/y to $9.0 billion, compared to the estimated $8.7 billion. Same-store sales rose 6.0% y/y, north of the expected 3.1% gain. TJX issued full-year earnings and sales guidance that missed forecasts. Separately, TJX announced plans to increase its quarterly dividend by 24.0% to $0.26 per share, and an addition to its share repurchase program of up to $2.0 billion. Shares were higher.

New home sales fall, while preliminary services sector report suggests contraction

New home sales (chart) fell 9.2% month-over-month (m/m) in January to an annual rate of 494,000 from December's unrevised 544,000 pace, and compared to the Bloomberg forecast of 520,000. The median home price fell 4.5% y/y at $278,800. The supply of new home inventory rose to 5.8 months at the current sales pace from 5.1 months in December as sales tumbled m/m in the West and dropped in the Midwest, more than offsetting modest gains in sales out of the Northeast and South. New home sales are based on contract signings instead of closings.

The preliminary Markit U.S. Services PMI Index in February surprisingly fell to a level depicting contraction (a reading below 50) for the first time since October 2013, falling to 49.8 from 53.2 in January, and versus forecasts of a modest rise to 53.5. Markit said East Coast snow disruption and the weakest rise in new work for 13 months acted as a brake on activity. Markit added that service providers reported the least favorable business outlook since August 2010. However, a solid rate of jobs growth was sustained in February. The release is independent and differs from the Institute for Supply Management's (ISM) report, as it has less historic value and Markit weights its index components differently.

The MBA Mortgage Application Index declined 4.3% last week, after gaining 8.2% in the previous week. The decrease came as a 7.7% drop in the Refinance Index more than offset a 2.2% rise for the Purchase Index. The average 30-year mortgage rate increased 2 basis points (bps) to 3.85%.

Treasuries pared early gains to finish mostly lower, as the yield on the 2-year was nearly unchanged at 0.76%, while the yields on the 10-year note and the 30-year bond rose 2 basis points (bps) to 1.74% and 2.60%, respectively. For more on the bond markets see Schwab's Director of Income Planning, Rob Williams', latest article, Low Rates, Volatile Markets: Income Investing Outlook 2016. Also, Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers analysis of how equities can be a nice source of income that investors may want to consider in his latest Schwab Sector Views: Looking for Income. Read both articles at and follow us on Twitter: @schwabresearch.

Tomorrow, the domestic economic calendar will bring the release of preliminary January durable goods orders, projected to rebound from December's 5.0% m/m drop and grow 2.7%. Excluding transportation, orders are projected to increase 0.3%, following the prior month's 1.0% gain. Demand for nondefense capital goods excluding aircraft are forecasted to rise 1.0%, after December's 4.3% fall.

As noted in the Schwab Market Perspective: Confidence is Key, part of the reason that the correction in stocks has been so frustrating is that the economy doesn’t seem to us to be reflecting that degree of negativity. Of course we understand that stocks are a leading indicator so the risk of a more serious economic downturn is elevated. And, as mentioned, corporate executives and consumers looking at a declining stock market may wonder what they are missing, and decide to hold off on investments and consumption until the dust clears, further pressuring economic activity. But at this point the leading economic indicators continue to point to a decent U.S. economic picture. Read more at, and follow us on Twitter: @schwabresearch.

As well, weekly initial jobless claims will be reported, forecasted to rise to a level of 270,000 from the prior week's 262,000.

Europe and Asia lower on weakness in energy and commodity issues
European equities traded lower, with volatility in crude oil prices continuing to weigh on the energy sector following a mixed U.S. oil inventory report and as comments from Saudi Arabia added to talk from Iran to dampen hopes of oil production cuts. Also, basic materials stocks were some of the biggest drags on the market as disappointing economic data recently, notably today's U.S. housing and services sector reports, buoyed global growth concerns. Financials were another weak spot as concerns regarding growing bad loans continued to hamper the sector, while uncertainty regarding a potential exit of the U.K. from the European Union exacerbated sentiment, with the British pound extending its recent tumble versus the U.S. dollar. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the U.K. uncertainty in his article, Brexit: 5 Things Investors Need to Know, at, and follow Jeff on Twitter: @jeffreykleintop. In economic news, French consumer confidence unexpectedly declined in February, while Italy's industrial orders' growth slowed sharply in December. The euro was little changed versus the U.S. dollar and bond yields in the region moved mostly to the downside.

Stocks in Asia finished mostly to the downside, with the pressure on crude oil prices returning, courtesy of comments out of Saudi Arabia and Iran that dampened hopes of production cuts to try to stabilize oil prices. Also, global growth concerns continue to fester following some lackluster economic data and growing worries about the ability of central banks to spark growth, exacerbated by heightened skepticism regarding the effectiveness of some countries adopting negative interest rate policies (NIRP). Japanese equities fell for a second-straight session, with the yen adding to its recent rally to weigh on the markets, particularly automakers. The yen has showed strength as of late on concerns about the late-January decision by the Bank of Japan (BoJ) to adopt a NIRP. 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.

Stocks in Hong Kong's Hang Seng Index fell as the economic growth concerns persisted in the wake of the country's 4Q GDP report, which showed growth slowed to a 1.9% y/y pace, from the 2.2% expansion posted in 3Q, where economists had expected it to remain. Also, the extended weakness in the Chinese yuan added to the uneasiness in the region. Schwab's Director of International Research, Michelle Gibley, CFA, discusses in her article, Currency Wars: Is a Weaker Currency Good or Bad?. Australia's markets dropped on the pressure on the oil & gas and basic materials sectors, while a report showed the nation's 4Q wage growth missed expectations, while securities traded in India finished lower, as continued cautiousness ahead of the country's key budget announcement next week further dampened sentiment. However, mainland Chinese stocks bucked the trend, as infrastructure issues got a boost from reports of China's Premier Li promoting urbanization in order to achieve medium-to-high-speed economic growth, per Bloomberg. For more on China, see Schwab's Director of International Research Michelle Gibley's, CFA, article, 5 Reasons China Won't Crash the Global Economy in 2016. Read all these articles at, and follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Economic reports slated for release internationally tomorrow include: consumer sentiment from South Korea, trade data from China and capital expenditures figures from Australia, while from across the pond will come consumer confidence, import prices and retail sales from Germany, GDP data from Spain and the U,K., as well as confidence numbers from Italy.

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.

No comments: