Charles Schwab: On the MarketPosted: 1/28/2016 4:15 PM ET
Stocks Manage Gains, Tech and Energy Lead Advance
U.S. stocks finished the regular trading session with solid gains, aided by a rally in crude oil prices and as Facebook highlighted the earnings front, giving a boost to the technology sector. In economic news, a sharp drop in domestic durable goods orders may have increased uncertainty toward the trajectory of future rate hikes from the Fed ahead of tomorrow's first look at 4Q GDP. Treasuries dipped, while gold and the U.S. dollar were also lower.
The Dow Jones Industrial Average (DJIA) increased 125 points (0.8%) to 16,070, the S&P 500 Index advanced 10 points (0.5%) to 1,893, and the Nasdaq Composite was 39 points (0.9%) higher at 4,507. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.92 to $33.22 per barrel and wholesale gasoline increased $0.03 to $1.10 per gallon, while the Bloomberg gold spot price decreased $10.90 to $1,114.07 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 98.59.
Dow member Caterpillar Inc. (CAT $61) reported 4Q earnings-per-share (EPS) ex-items of $0.74, above the $0.69 FactSet estimate, as revenues fell 22.6% year-over-year (y/y) to $11.0 billion, below the expected $11.4 billion. CAT issued 2016 adjusted earnings guidance that was above the Street's forecasts, while its revenue outlook had a midpoint below estimates. CAT gained solid ground.
Facebook Inc. (FB $109) posted 4Q profits of $0.79 per share, north of the projected $0.68, with revenues jumping 51.7% y/y to $5.8 billion, above the expected $5.4 billion. Daily and monthly active users both grew quarter-over-quarter (q/q), while its mobile advertising revenues topped forecasts. Shares finished sharply higher.
Ford Motor Co. (F $12) announced 4Q EPS ex-items of $0.58, topping the forecasted $0.50, as revenues rose 12.1% y/y to $37.9 billion, above the expected $36.6 billion. F said it expects full-year revenue and EPS to be equal to or higher than 2015, though profit margins in its North America business and automotive operating-related cash flow may not equal levels achieved in 2015. Shares moved lower.
Time Warner Cable Inc. (TWC $178) reported adjusted 4Q earnings of $1.80 per share, above the $1.77 forecast, as revenues rose 4.9% y/y to $6.1 billion, roughly in line with expectations. TWC traded higher.
Eli Lilly and Co. (LLY $77) posted 4Q EPS ex-items of $0.78, roughly in line with estimates, as revenues were flat y/y at $5.4 billion, above the expected $5.3 billion. LLY reaffirmed its full-year guidance. LLY was under some pressure as analysts expressed concerns about drug pricing, some underperforming recent product launches, and softer-than-expected animal health results.
Under Armour Inc. (UA $84) achieved 4Q profits of $0.48 per share, two cents above forecasts, with revenues jumping 31.0% y/y to $1.2 billion, north of the expected $1.1 billion. UA issued 2016 revenue guidance that was above estimates. Shares rallied.
Durable goods orders fall along with jobless claims
Durable goods orders (chart) were down 5.1% month-over-month (m/m) in December, compared to the Bloomberg estimate of a 0.7% decline, and November's downwardly revised 0.5% decrease. Ex-transportation, orders fell 1.2% m/m, versus the 0.1% forecasted dip and November's negatively revised 0.5% decline. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, dropped 4.3%, compared to projections of a 0.2% decrease and the downwardly revised 1.1% decline in the month prior. The report showed broad-based weakness, with the volatile components of the report—defense and non-defense aircraft and parts—both falling sharply, but standout drags came from a tumble in communications equipment, which was met with solid declines in manufacturing and machinery.
The report likely elevated recession concerns ahead of tomorrow's first look (of three) at 4Q GDP, projected to show growth slowed from a 2.0% q/q annualized rate of growth in 3Q to a pace of 0.8% (economic calendar). However, Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her article, Changes: Turn and Face the Strange (Market), we are in a manufacturing recession, but at this point, the much larger services segment of the economy is showing sustained growth. Historically, if the annual average of industrial production is down for an entire year, weakness spread to the broader economy. We have yet to see that kind of weakness, but it’s on our watch list. Every predictive recession model she has studied still suggests a low risk of recession. In fact, if we are in one or heading toward one, it would be the first time in history the leading indicators did not roll over and provide ample warning. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.
Weekly initial jobless claims (chart) fell by 16,000 to 278,000 last week, versus estimates of a decline to 281,000 as the prior week's figure was revised upward by 1,000 to 294,000. The four-week moving average decreased by 2,250 to 283,000, while continuing claims rose by 49,000 to 2,268,000, north of the forecasted 2,218,000 level.
Pending home sales ticked 0.1% higher m/m in December, versus projections of a 0.9% rise and following the downwardly revised 0.9% decline registered in November. Compared to last year, sales were 3.1% higher, versus forecasts of a 4.8% rise. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which jumped in December.
The Kansas City Fed Manufacturing Activity Index for January remained at December's -9 level, versus forecasts of a decline to -10, with a reading south of zero depicting contraction.
Treasuries dipped, with the yields on the 2-year note and the 30-year bond ticking 1 basis point (bp) higher to 0.82% and 2.79%, respectively, and the yield on the10-year note increasing 2 bps to 1.98%. Schwab's Chief Fixed Income Strategist, Kathy Jones, offers our Fixed Income Outlook 2016: New Year, Same Road Map, at www.schwab.com/marketinsight, and follow Kathy on Twitter: @kathyjones.
Additional items on tomorrow's economic docket will include the Chicago Purchasing Managers Index for January, expected to show activity in the Midwest improved to 45.3 from the 42.9 posted in December, though a reading below 50.0 represents contraction. We will also receive the final University of Michigan Consumer Sentiment Index for January, forecasted to inch lower to 93.0 from the 93.3 registered in the preliminary release, but up from the 92.6 reading for December.
Europe lower and Asia mixed following Fed decision
European equities traded lower, with yesterday's monetary policy statement from the Federal Reserve, which led to a late-session drop in the U.S., causing some confusion regarding the trajectory of future rate hikes. Traders digested some mixed earnings reports from both sides of the pond, along with the disappointing U.S. durable goods report. In economic news, preliminary U.K. 4Q GDP rose at a 0.5% q/q pace, matching expectations, and compared to the 0.4% gain in 3Q. German consumer price inflation fell in line with forecasts for January, while eurozone economic confidence declined for this month. Oil & gas issues showed some strength as crude oil prices rallied, but Italian banks remained under pressure on continued concerns about bad loans. The euro traded higher versus the U.S. dollar and bond yields in the region finished mixed. The Schwab Center for Financial Research offers a look at Market Volatility: What Investors Should Know, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.
Stocks in Asia finished mixed on the heels of yesterday's drop in the U.S. as traders grappled with the Fed's monetary policy statement after it left its target rate range unchanged. Japanese equities declined on the heels of an unexpected dip in the nation's retail sales for December, but some losses were pared late in the session as the yen gave up early strength. Also, traders may have treaded cautiously ahead of tomorrow's monetary policy decision from the Bank of Japan. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the global monetary policy front in his article, Central Banks to the Rescue?. Mainland Chinese stocks continued their rout on festering economic growth concerns and despite the People's Bank of China continuing to pump liquidity into the financial system. Schwab's Jeffrey Kleintop, CFA, offers a look at China in his article, Chinese Stock Market Selloff: What's New, What's Not. Read both articles at www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop. Stocks trading in Hong Kong and South Korea gained ground and Australian securities also moved higher with oil & gas, basic materials and financial stocks showing some resiliency, while Indian equities declined.
In addition to the aforementioned monetary policy decision from the Bank of Japan, the international economic docket for tomorrow will be flooded with releases from the island nation on its jobless rate, CPI, industrial production, consumer confidence, vehicle production, housing starts and construction orders. Australia will report its PPI and private sector credit growth, while additional releases from across the pond will include retail sales from Germany, consumer spending from France and CPI for the eurozone.
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.