Stocks Close Down After Three Sessions of Gaining Ground

Charles Schwab: On the Market

Posted: 2/18/2016 4:15 PM ET

Stocks Close Down After Three Sessions of Gaining Ground

U.S. equities closed the regular trading session lower with Dow member Wal-Mart Stores weighing on the blue-chip index and as crude oil prices pared strong early gains on the heels of a divergent government energy report. Treasuries were higher with lackluster regional manufacturing and Leading Indicators reports overshadowing an unexpected drop in weekly jobless claims. Gold and the U.S. dollar traded higher.

The Dow Jones Industrial Average (DJIA) decreased 41 points (0.2%) to 16,413, the S&P 500 Index declined 9 points (0.5%) to 1,918, and the Nasdaq Composite lost 47 points (1.0%) to 4,488. In heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.11 to $30.77 per barrel and wholesale gasoline decreased $0.03 to $0.97 per gallon, while the Bloomberg gold spot price gained $27.58 to $1,236.08 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% higher to 96.88.

Dow member Wal-Mart Stores Inc. (WMT $64) finished lower after the company reported 4Q earnings-per-share (EPS) ex-items of $1.49, above the $1.46 FactSet estimate, as revenues declined 1.4% year-over-year (y/y) to $129.7 billion, versus the projected $130.6 billion. WMT's 4Q U.S. same-store sales rose 0.6% y/y, compared to the expected 0.9% gain. The company issued 1Q EPS guidance with a midpoint below estimates, while its full-year profit outlook included a midpoint that slightly topped forecasts. WMT also lowered its full-year net sales growth guidance. Separately, the company raised its annual dividend by 2.0% to $2.00 per share. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in his latest Schwab Sector Views: Looking for Income, the low yields offered by most fixed income products have driven many investors to look for income in other places—including the equity front. And for the time being, dividends have become a more important part of equity returns as stock price increases have lessened. Read more at www.schwab.com/marketinsight, and follow Schwab on Twitter: @schwabresearch.

NVIDIA Corp. (NVDA $30) posted 4Q profits of $0.35 per share, three cents north of forecasts, with revenues growing 12.0% y/y to $1.4 billion, above the estimated $1.3 billion. The graphics chipmaker issued 1Q revenue guidance that exceeded expectations. NVDA finished decisively higher.

Dow component International Business Machines Corp. (IBM $132) announced plans to acquire provider of cloud-based healthcare data, analytics and insights, Truven Health Analytics, for $2.6 billion. Truven will be part of the IBM Watson Health portfolio. IBM closed solidly higher, bolstered by an analyst upgrade of the company by Morgan Stanley.

Jobless claims surprisingly decline, while LEI decreased for second-straight month

Weekly initial jobless claims (chart) decreased by 7,000 to 262,000 last week, versus the Bloomberg estimate calling for 275,000 as the prior week's figure was unrevised at 269,000. The four-week moving average fell by 8,000 to 273,250, while continuing claims rose by 30,000 to 2,273,000, north of the forecasted 2,250,000 level.

The Conference Board's Index of Leading Economic Indicators (LEI) (chart) was down 0.2% month-over-month (m/m) in January, matching projections, and compared to December's downwardly revised 0.3% decrease. This was the second-straight monthly decline for the index, with components pertaining to stock prices, ISM new orders, and jobless claims, weighing on the index. Support came from the yield curve and orders for nondefense capital goods excluding aircraft.

The Philly Fed Manufacturing Index (chart) in February rose to -2.8 from -3.5 in January, compared to estimates calling for a slight improvement to -3.0, though a reading below zero denotes contraction.

Treasuries were higher, with the yield on the 2-year note decreasing 4 basis points (bps) to 0.70%, while the yields on the 10-year note and the 30-year bond declined 7 bps to 1.75% and 2.62%, 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, at www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.

Tomorrow, the lone major release from the U.S. economic calendar will be the Consumer Price Index (CPI), with economists expecting a 0.1% m/m decrease for the month of January, while excluding food and energy, the core rate is forecasted to have risen 0.2% m/m.

Europe mixed, Asia mostly higher

European equities finished mixed, on the heels of yesterday's strong advance. Oil & gas issues and financials weighed on the markets in the region, while some upbeat earnings reports lent support. U.K. stocks were bogged down by some weakness in mining issues, which have rallied as of late. For more on the recent wild swings in the markets, 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. In economic news, Switzerland's trade surplus widened in January and French consumer price inflation fell m/m in January. The euro lost ground versus the U.S. dollar and bond yields in the region traded mostly to the downside.

Stocks in Asia finished mostly to the upside as U.S. markets rallied for a third-straight session and Europe posted strong gains yesterday. Oil & gas stocks got a boost from the recent rally in crude oil prices and basic materials stocks followed suit, despite some disappointing economic data in the region. Japanese equities rose, even as the yen recovered late in the session and the nation reported a larger-than-expected drop in exports for January. Australian stocks also moved higher amid the gains for commodity-related issues, despite an unexpected decline in the country's employment change for last month. Securities trading in South Korea, India and the Hong Kong finished nicely to the upside. However, mainland Chinese stocks dipped slightly, as traders digested some January inflation data, which showed consumer prices rose by a smaller amount than projected and as the continued fall in wholesale prices slowed more than anticipated.

The international economic docket for tomorrow will include the release of the All Industry Activity Index from Japan, the PPI from Germany and retail sales from the U.K.

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.