Charles Schwab: On the MarketPosted: 2/19/2016 4:15 PM ET
Stocks Mixed on the Day, but Higher for the Week
U.S. stocks finished the regular trading session in mixed fashion to wrap up a relatively positive week for equities across the globe. Crude oil prices were under pressure to weigh on the energy sector, while upbeat quarterly results and guidance from Applied Materials helped bolster gains for technology issues. Treasuries declined in the wake of a hotter-than-expected read for consumer price inflation. The U.S. dollar and gold traded lower.
The Dow Jones Industrial Average (DJIA) declined 21 points (0.1%) to 16,392, the S&P 500 Index was nearly unchanged at 1,918, and the Nasdaq Composite gained 17 points (0.4%) to 4,504. In moderately-heavy volume, 1.2 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.18 to $31.75 per barrel, wholesale gasoline decreased $0.01 to $0.96 per gallon, and the Bloomberg gold spot price lost $2.33 to $1,228.54 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 96.64. Markets were higher for the week, as the DJIA increased 2.6%, the S&P 500 Index added 2.8%, and the Nasdaq Composite Index gained 3.8%.
Deere & Co. (DE $77) reported fiscal 1Q earnings-per-share (EPS) of $0.80, above the $0.71 FactSet estimate, as net sales out of its equipment operations fell 14.9% year-over-year (y/y) to $4.8 billion, versus the projected $4.9 billion. The farm and construction equipment maker said its results reflected weakness in global markets. DE added that it expects full-year sales to drop 10% and be 8.0% lower in 2Q compared to the same period a year ago. DE closed solidly lower.
Applied Materials Inc. (AMAT $18) posted 1Q profits ex-items of $0.26 per share, versus the expected $0.25, with revenues decreasing 4.0% y/y to $2.3 billion, compared to the forecasted $2.2 billion. The semiconductor materials engineering company issued 2Q EPS and revenue guidance that topped estimates. Shares gained solid ground.
Nordstrom Inc. (JWN $49) announced 4Q EPS ex-items of $1.17, below the projected $1.22, as revenues increased 3.7% y/y to $4.2 billion, roughly in line with expectations. Same-store sales for the quarter rose 1.0% y/y, versus the anticipated gain of 1.1%. JWN issued full-year same-store sales and earnings outlooks that came in below forecasts, while noting that first-half profits are projected to fall 30.0% y/y, due to the impact of the sale of credit receivables in October 2015, the impact of growth initiatives, and the shift of its Anniversary Sale event from the second quarter in 2015 to the second and third quarters in 2016. Shares of JWN dropped.
Yahoo Inc. (YHOO $30) announced that its Board of Directors has formed a Strategic Review Committee of independent directors to lead its previously-announced effort in exploring strategic alternatives alongside its continued consideration of a reverse spin-off. YHOO traded higher.
Consumer price inflation tops expectations
The Consumer Price Index (CPI) (chart) was flat month-over-month (m/m) in January, versus the Bloomberg forecast of a 0.1% dip, while December's 0.1% decline was unrevised. The core rate, which strips out food and energy, rose 0.3% m/m, compared to expectations of a 0.2% increase, and December's upwardly revised 0.2% gain. Y/Y, prices were up 1.4% for the headline rate, versus forecasts of a 1.3% gain, while the core rate was 2.2% higher, north of projections of a 2.1% rise. December's y/y figures showed an unrevised 0.7% rise and an unadjusted 2.1% increase for the headline and core rates respectively.
Treasuries were mostly lower following the report, with the yield on the 2-year note rising 5 basis points (bps) to 0.74% and the yield on the 10-year note increasing 1 bp to 1.75%, while the 30-year bond rate was flat at 2.61%. 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 www.schwab.com/marketinsight and follow us on Twitter: @schwabresearch.
Europe lower and Asia mixed to close out an upbeat week
European equities traded lower, with markets in Asia mixed and pressure on financials returning, trimming a solid weekly advance of about 4.5% for the Stoxx Europe 600 Index. Mixed earnings were in focus, while oil & gas issues were bogged down by the weakness in crude oil prices. The euro ticked higher late in the session versus the U.S. dollar and bond yields in the region were mixed. In economic news, U.K. January retail sales rose much more than forecasted.
Stocks in Asia finished mixed after the U.S. markets snapped a three-session rally yesterday, with declines in oil prices weighing on the energy sector. However, most major markets in the region finished nicely higher for the week, led by the best weekly advance in Japan in six years and the largest weekly gain in China in two months, per Bloomberg. 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. Japanese equities fell as the yen gained ground, while stocks trading in mainland China Hong Kong ticked slightly lower. Relative stability in the global markets, noticeably in the oil and commodity markets, helped boost stocks, along with signs that the Chinese government was increasing support for its slowing economy. Australian securities traded lower, with oil & gas and basic materials issues showing some weakness, while South Korean listings ticked higher to add to their weekly advance. Finally, Indian equities gained ground with automakers and financials helping extend its largest weekly gain in four months.
U.S. stocks join world market weekly rally
The domestic equity markets finished a holiday-shortened week solidly higher, joining rallies for Asia and Europe, with the global markets showing some signs of relative stability after the recent bout of heightened volatility. Robust Chinese lending statistics and a much stronger-than-expected U.S. industrial production report underpinned sentiment, while the recent flare-up in a flight-to-safety appeared to wane, with the fall in U.S. Treasury yields and the rallies for gold and the yen ebbing. Technology stocks led a broad-based advance for the major sectors, which included gains for consumer issues, despite a lowered sales outlook for Dow member Wal-Mart Stores Inc. (WMT $64). However, the wild swings in the crude oil markets continued and Fed uncertainty remained with the Federal Open Market Committee's (FOMC) minutes from its January monetary policy meeting showing policymakers voiced concerns over the recent turmoil in the markets.
For a look at the current volatile global market landscape, see Schwab's Chief Investment Strategist, Liz Ann Sonders' Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, in which she notes that the stock market appears reasonably valued, and higher valuations are unlikely without a return to positive earnings growth. Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.
U.S. economic front set to be robust
Next week, U.S. trading will return to normal and include a robust domestic economic calendar, headlined by the releases of Markit's business activity reports, Consumer Confidence, existing and new home sales, preliminary durable goods orders, and the second look (of three) at 4Q GDP.
As noted in the Schwab Market Perspective: Confidence is Key, the investing environment continues to be uncertain, with confidence among businesses and investors shaken. History, however, has proven that times like these can make or break successful investing strategies. The correction in stocks doesn’t yet seem to be corroborated by a sharp US economic downturn. In fact, recent economic data has been encouraging, but shattered confidence can lead to a self-fulfilling prophecy. Recent economic readings from around the world also suggest that the globe is not slipping into a recession. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.
Other key U.S. reports next week include: S&P/Case-Shiller Home Price Index, personal income and spending, and the final University of Michigan Consumer Sentiment Index.
International reports next week include: Australia—4Q Wage Price Index. China—property prices. Japan—consumer price inflation and Japan PMI Manufacturing Index. Eurozone—Markit's business activity reports and consumer price inflation, along with German 4Q GDP and business confidence. U.K.—4Q GDP and consumer confidence.
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.