Charles Schwab: On the MarketPosted: 2/4/2016 4:15 PM ET
Stocks Finish Higher After Volatile Session
U.S. equities traded in a somewhat erratic fashion as the major domestic indexes fluctuated between gains and losses multiple times throughout the regular session before ultimately finishing to the upside. Treasuries were higher as the U.S. economic calendar delivered some weaker-than-expected reports on weekly jobless claims, nonfarm productivity and factory orders. In equity news, the Street digested another plethora of earnings reports. Gold was higher and the U.S. dollar was lower, while crude oil prices reversed from early gains and closed to the downside.
The Dow Jones Industrial Average (DJIA) rose 80 points (0.5%) to 16,417, the S&P 500 Index gained 3 points (0.2%) to 1,915 and the Nasdaq Composite increased 5 points (0.1%) to 4,510. In heavy volume, 1.2 billion shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.56 to $31.72 per barrel, while wholesale gasoline added $0.02 to $1.03 per gallon and the Bloomberg gold spot price rose $12.97 to $1,156.60 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—decreased 0.7% to 96.55.
ConocoPhillips (COP $35) reported a 4Q loss ex-items of $0.90 per share, versus the FactSet estimate calling for a $0.64 per share shortfall, while the company also lowered its 2016 capital expenditures outlook and slashed its quarterly dividend to $0.25 per share, from $0.74 per share. COP noted, "While we don't know how far commodity prices will fall, or the duration of the downturn, we believe it's prudent to plan for lower prices for a longer period of time." Shares traded solidly lower.
Yum Brands Inc. (YUM $72) posted 4Q earnings-per-share (EPS) ex-items of $0.68, one penny north of forecasts, with revenues dipping 1.2% year-over-year (y/y) to $4.0 billion, roughly in line with expectations. Same-store sales at its KFC and Taco Bell restaurants both grew slightly more than anticipated, while its Pizza Hut sales gain came in just shy of estimates. YUM's sales in China rose by a smaller amount than expected. The company reaffirmed its full-year constant currency operating profit growth outlook. YUM lost ground.
Costco Wholesale Corp. (COST $143) announced January same-store sales were flat y/y, versus the expected 1.7% gain. Excluding the negative impact of foreign currency and gasoline price deflation, same store sales grew 4.0% y/y. COST moved lower.
Kohl's Corp. (KSS $42) lowered its 2016 EPS guidance, reflecting lower-than-planned sales and significantly lower-than-expected gross margin for 4Q. The company said gross margin was affected by the origin and timing of the sales in addition to the competitive promotional environment which resulted in higher-than-expected markdowns on both year-round and seasonal merchandise. The lowered outlook came as the company posted softer-than-expected 4Q same-store sales. KSS finished sharply lower.
CBS Corp. (CBS $48) reported that Sumner M. Redstone resigned from his position of Executive Chairman and Leslie Moonves has been elected the Chair of the company's Board of Directors. Also, Sumner Redstone was replaced as Executive Chairman of Viacom Inc. (VIAB $45) by Philippe Dauman. CBS and VIAB traded higher.
MetLife Inc. (MET $40) posted 4Q EPS ex-items of $1.23, below the expected $1.36, as revenues declined 6.0% y/y to $17.1 billion, compared to the estimated $17.6 billion. MET said its 4Q earnings were negatively impacted by lower variable investment income, which can be volatile, as well as a strong U.S. dollar. The company added, "While 2015 was a challenging year overall, our plan to separate a substantial portion of the U.S. Retail business demonstrates our willingness to take bold steps to maximize shareholder value." Shares closed decisively lower.
Jobless claims rise more than expected, bond yields continue slide
Weekly initial jobless claims (chart) rose by 8,000 to 285,000 last week, versus the Bloomberg estimate calling for 278,000 as the prior week's figure was revised downward by 1,000 to 277,000. The four-week moving average rose by 2,000 to 284,750, while continuing claims declined by 18,000 to 2,255,000, north of the forecasted 2,240,000 level.
Preliminary 4Q nonfarm productivity (chart) fell 3.0% on an annualized basis, versus expectations of a 2.0% decline, following the downwardly revised 2.1% rise seen in the 3Q, from the 2.2% gain previously reported. However, unit labor costs rose 4.5%, versus the forecast calling for a 4.3% increase. Unit labor costs were revised higher to a rise of 1.9% in 3Q, from the initially reported 1.8% increase.
Factory orders (chart) fell 2.9% month-over-month (m/m) in December, versus expectations of a 2.8% drop, while November's 0.2% decline was adjusted to a 0.7% decrease. December durable goods orders—preliminarily reported last week—were revised slightly higher to a 5.0% drop from the originally reported 5.1% fall.
Treasuries were higher, with the yield on the 2-year note declining 1 basis point (bp) to 0.71%, while the yields on the 10-year note and the 30-year bond were 3 bps lower at 1.85% and 2.69%, respectively. Bond yields have fallen as of late on dampened expectations of further Fed rate hikes, amid the heightened global volatility and softer-than-expected economic data. For more on the 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.
Tomorrow, the U.S. economic calendar will culminate with the release of the January nonfarm payroll report, projected to show a rise of 190,000 jobs, after gaining by 292,000 in December. Private sector jobs are expected to grow by 180,000 after the prior month's 275,000 gain, while the unemployment rate is estimated to remain at 5.0%. Wages are forecasted to rebound 0.3% m/m from December's flat reading.
Job growth has been a bright spot on the domestic economic front as of late, amid the backdrop of waning global growth sentiment and heightened recession talk. 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, groupthink has gelled around the worst-case scenario. Our view is less apocalyptic, but cautious nonetheless. We are maintaining our “neutral” rating on U.S. stocks, which means investors should not take risk above their normal equity allocation. Recession risk is up, but beware of the cacophony of apocalyptic forecasts. Focus more on leading indicators than lagging indicators. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.
Additional reports on tomorrow's domestic docket will include the trade balance and consumer credit.
Europe mixed on commodities, currencies and earnings; Asia mostly higher
European equities finished mixed, with commodity stocks lending support to some markets following yesterday's jump in crude oil prices and the U.S. dollar adding to its recent rout. The euro rallied again versus the U.S. dollar and bond yields in the region moved higher. Also, traders digested a plethora of divergent earnings results. In economic news, the Bank of England left it benchmark interest rate at a record low of 0.50% and maintained its asset purchase program.
Stocks in Asia finished mostly to the upside, with yesterday's sharp rebound in crude oil prices helping boost oil & gas listings, aided by the drop in the U.S. dollar following a disappointing services sector report, which also helped lift other commodity-related issues. Equities trading in Australia, South Korea and India advanced, while Chinese stocks rebounded in continued lighter-than-average volume as the nation prepares for next week's lunar new year holidays. However, Japanese securities lagged behind as the yen rallied amid the drop in the U.S. dollar to weigh on export-related stocks. 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.
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