Stocks Mixed in Choppy Trading

Charles Schwab: On the Market

Posted: 2/10/2016 4:15 PM ET

Stocks Mixed in Choppy Trading

U.S. stocks closed mixed on Wednesday as gains dissipated in the final hour of trading with the Dow lagging major domestic indexes as shares of Walt Disney weighed heavily on the blue chip benchmark. Crude prices finished lower after a momentary spike following a divergent oil inventory report from the U.S. Energy Information Administration. Treasuries and gold were higher and the U.S. dollar was lower as investors tuned in to Congressional monetary policy testimony from Fed Chief Janet Yellen, which will continue tomorrow in front of the Senate Banking Committee.

The Dow Jones Industrial Average (DJIA) decreased 100 points (0.6%) to 15,915, the S&P 500 Index was nearly unchanged at 1,852, and the Nasdaq Composite advanced 15 points (0.3%) to 4,284. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.49 to $27.45 per barrel and wholesale gasoline added $0.04 to $0.94 per gallon, while the Bloomberg gold spot price moved $7.47 higher to $1,196.60 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 95.83.

Dow member Walt Disney Co. (DIS $89) reported fiscal 1Q earnings-per-share (EPS) ex-items of $1.63, above the $1.45 FactSet estimate, as revenues rose 14.0% year-over-year (y/y) to $15.2 billion, compared to the expected $14.8 billion. The company said a "phenomenal success of Star Wars" helped it deliver the highest quarterly earnings in its history. However, DIS' earnings out of its media networks declined y/y, due to a decrease at ESPN, which appeared to foster concern and overshadow the upbeat performance from its Star Wars franchise. Shares traded solidly lower.

Time Warner Inc. (TWX $60) posted 4Q EPS of $1.06, versus the expected $1.01, with revenues decreasing 6.0% y/y to $7.1 billion, below the forecasted $7.5 billion. TWX issued 2016 earnings guidance that topped expectations, while announcing a $5.0 billion addition to its share repurchase program and a 15.0% increase of its quarterly cash dividend to $0.4025 per share. TWX closed to the downside as the company's decline in subscribers at its Turner cable-network unit exacerbated sentiment toward the changing viewer landscape.

Mortgage applications rise, Fed Chief speaks on the Hill

The MBA Mortgage Application Index rose 9.3% last week, after declining 2.6% in the previous week. The solid rebound came as a 15.8% jump in the Refinance Index led the way, while the Purchase Index ticked 0.2% higher. The average 30-year mortgage rate fell 6 basis points (bps) to 3.91%.

Federal Reserve Chairwoman Janet Yellen began her two-day Congressional Monetary Policy Report, speaking to the House Financial Services Committee, culminating with tomorrow's testimony to the Senate Banking Committee. The focus was on the trajectory of further Fed rate hikes, which uncertainty of has ramped up amid signs of a recession for the U.S. manufacturing sector and a larger-than-expected slowdown in the more heavily-weighted services sector. However, Friday's stronger-than-expected wage component of the January nonfarm payroll report exacerbated the rate ambiguity, along with the flare-up in global market turmoil. Yellen stressed that monetary policy is not on a preset course, and the Committee expects that economic conditions will warrant only gradual increases in the federal funds rate, but data will determine the path of monetary policy. Yellen also acknowledged that the Fed will take into account a wide range of measures, including labor market conditions, inflation pressures and expectations, and readings on financial and international developments.

Schwab's Chief Investment Strategist, Liz Ann Sonders discusses the market volatility in Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, noting that recent U.S. employment data has renewed the possibility of further Federal Reserve short-term interest rate increases. Also, she adds that the stock market appears reasonably valued, and higher valuations are unlikely without a return to positive earnings growth. Finally, Liz Ann points out that some market participants have said low oil prices are sending a recessionary signal, but recessions historically have been preceded by oil price spikes, not crashes. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Treasuries were mostly higher, with the yield on the 2-year note flat at 0.69%, while the yield on the 10-year note lost 4 bps to 1.68% and the 30-year bond rate declined 5 bps to 2.51%. For more on the recently volatile 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 lone major release from the U.S. economic calendar will be weekly initial jobless claims, expected to have declined to 280,000 from the 285,000 reported the week prior.

Europe rallies as banks rebound, Asia continues rout

European equities traded higher, rebounding from their recent pounding, with banking stocks leading the way, recovering from recent pressure that has stemmed from heightened credit concerns. Also, the markets digested the Congressional testimony from U.S. Federal Reserve Chairwoman Janet Yellen, in which she appears to be keeping alive the possibility of further rate hikes. Italian banks jumped after being heavily sold as of late on concerns toward growing bad loans. The euro traded lower versus the U.S. dollar and bond yields in the region were mixed. In economic news, industrial and manufacturing production reports out of France and the U.K. fell and missed expectations for December.

Stocks in Asia finished lower amid continued pressure for commodity-related issues, while banking stocks also remained hampered. Japanese equities fell, adding to yesterday's tumble, as the yen continued to rally to levels not seen since November 2014 versus the U.S. dollar amid a persistent flight to safe-haven assets. Australian securities dropped despite an upbeat read on the nation's February consumer confidence, and Indian stocks traded lower amid the global market turmoil and coinciding pressure on financials, technology and commodity-related issues. However, volume remained light as markets in mainland China, Hong Kong and South Korea stayed closed for the lunar new year holidays.

The international economic docket for tomorrow will be light, offering a report on consumer inflation expectations from Australia.

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.