On the MarketPosted: 2/11/2016 4:15 PM ET
Stocks Shave Early Losses, but Still Close Lower
Off the worst levels of the day, U.S. stocks closed lower, though the Nasdaq flirted with positive territory in the final hour of trading. The major domestic indexes began the regular session under heavy pressure following a global equity selloff amid continued pressure for crude oil prices and heightened uncertainty regarding Fed monetary policy. Gold rallied and Treasuries were also higher, while the U.S. dollar was lower. In equity news, Dow member Cisco Systems topped quarterly profit projections to headline a plethora of mixed corporate earnings reports.
The Dow Jones Industrial Average (DJIA) fell 255 points (1.6%) to 15,660, the S&P 500 Index declined 23 points (1.2%) to 1,829, and the Nasdaq Composite declined 17 points (0.4%) to 4,267. In heavy volume, 1.4 billion shares were traded on the NYSE and 2.8 billion shares changed hands on the Nasdaq. WTI crude oil declined $1.24 to $26.21 per barrel and wholesale gasoline was unchanged at $0.94 per gallon, while the Bloomberg gold spot price moved $49.23 higher to $1,246.35 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 95.56.
Dow member Cisco Systems Inc. (CSCO $25) reported fiscal 2Q earnings-per-share (EPS) ex-items of $0.57, above the $0.54 FactSet estimate, as revenues rose 2.0% year-over-year (y/y) to $11.8 billion, roughly in line with forecasts. The company also announced a 24.0% increase of its quarterly dividend to $0.26 per share, while raising its share repurchase plan by $15.0 billion. CSCO's 3Q EPS guidance matched forecasts. Shares finished nicely higher.
Dow component Boeing Co. (BA $108) dropped after Bloomberg reported that the U.S. Securities and Exchange Commission (SEC) is investigating whether the company properly accounted for the costs and expected sales of its 787 Dreamliner and 747 aircraft, citing people familiar with the matter. BA and the SEC declined to comment on the report.
PepsiCo Inc. (PEP $97) announced 4Q earnings of $1.06 per share, matching forecasts, as revenues declined 7.0% y/y to $18.6 billion, roughly in line with expectations. PEP issued 2016 EPS guidance that missed projections, while raising its annual dividend by 7.1% to $3.01 per share. Shares traded lower.
Whole Foods Market Inc. (WFM $29) reported fiscal 1Q EPS of $0.46, above the projected $0.40, as revenues increased 3.0% y/y to $4.8 billion, mostly matching expectations. 1Q same-store sales declined 1.8%, versus the estimated 2.2% drop. WFM closed modestly to the upside.
Twitter Inc. (TWTR $14) posted 4Q profits ex-items of $0.16 per share, versus the $0.15 expectation, with revenues growing 48.0% y/y to $710 million, roughly in line with estimates. Monthly active users came in below expectations, along with its 1Q revenue outlook. TWTR was under pressure.
Tesla Motors Inc. (TSLA $150) rallied after the electric automaker forecasted a sharp increase of vehicle deliveries for this year that exceeded expectations, and overshadowed the company's unexpected 4Q loss and softer-than-expected revenues.
Expedia Inc. (EXPE $103) gained solid ground after the travel booking site forecasted a sharp increase in core operating earnings for this year, more than offsetting its 4Q EPS miss and in line quarterly revenues.
Jobless claims drop, Fed Chief concludes two-day Congressional testimony
Weekly initial jobless claims (chart) fell by 16,000 to 269,000 last week, versus the Bloomberg estimate calling for 280,000 as the prior week's figure was unrevised at 285,000. The four-week moving average declined by 3,500 to 281,250, while continuing claims dropped by 21,000 to 2,239,000, south of the forecasted 2,245,000 level.
Federal Reserve Chairwoman Janet Yellen concluded her two-day Congressional Monetary Policy Report, speaking to the Senate Banking Committee. Her prepared remarks were the same as what she told the House yesterday. 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 it will take into account a wide range of measures, including labor market conditions, inflation pressures and expectations, and readings on financial and international developments. She added that global economic weakness, notably in China, poses a risk to the U.S. economic outlook.
The Q&A session following her remarks was in focus, with the markets looking for clues regarding the trajectory of further Fed rate hikes, amid mixed economic data and the flare-up in global market turmoil. Yellen noted that they are watching developments very carefully, and "I would say there is always a chance of a recession in any year," but "the evidence suggests that expansions don't die of old age." She added that the Central Bank was revisiting the possibility of a negative interest rate policy (NIRP) should the U.S. economy warrant additional accommodation. However, Yellen said back in 2010, they decided that it would not work well to foster accommodation and "we would have work to do" to judge whether it would be workable here. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, notes in his article, Negative Interest Rate Policy Adds Up To Less than Zero for Investors, while the main economic risks of a NIRP have yet to be realized, increasingly negative interest rates may weigh more heavily on the stock market and pose a threat to the drivers of the global economy. Read more at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.
Treasuries were mostly higher amid the persistent global market turmoil, with the yield on the 2-year note declining 4 basis points (bps) to 0.65% and the yield on the 10-year note decreasing 3 bps to 1.64%, while the 30-year bond rate was flat at 2.49%. For more on the rally in the volatile 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's U.S. economic calendar will be headlined by a couple of reads on the health of the consumer, the key driver of economic output, with the releases of January retail sales and the preliminary University of Michigan Consumer Sentiment Index. Retail sales are projected to rise 0.1% month-over-month (m/m), after dipping 0.1% in the prior month, while stripping out autos, sales are anticipated to be flat following December's 0.1% decline. Excluding autos and gas, sales are forecasted to rise 0.3% on the heels of a flat reading. Consumer sentiment is estimated to improve modestly to 92.3 from 92.0 in January.
As noted in the Schwab Market Perspective: Watching and Waiting, the markets are still recession-obsessed, exacerbated by the slump in the manufacturing sector. However, much of the rest of the economy continues to look fairly healthy, notably the all-important labor market and the more heavily-weighted services sector that remains in growth territory. Also, rising house prices indicate and help to facilitate confidence among consumers. As Mike Tyson said, "Everyone has a plan until they get punched in the face." Investors have been punched in the face to start 2016, but we urge them to stick with their plans. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.
The Import Price Index and business inventories will also be released tomorrow.
Europe falls as banks and miners drop, Asia mixed in light volume
European equities fell broadly, with the banking sector coming under pressure following yesterday's rebound that helped the markets recover somewhat. Oil & gas issues saw pressure as crude oil prices continued to fall, while basic materials were also lower. The euro traded higher versus the U.S. dollar and bond yields in the region were mixed. Schwab's Chief Investment Strategist, Liz Ann Sonders offers a Q&A with Liz Ann Sonders: What's Behind the Recent Market Volatility?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders. In economic news, Sweden's central bank cut its benchmark interest rate to -0.50% from -0.35%, and compared to the expected -0.45% rate.
Stocks in Asia finished mixed as the global market turmoil continued, along with persistent oil volatility. Also, the markets digested the Congressional testimony from U.S. Fed Chief Yellen where she did not close the door on further rate hikes this year, but did note that global economic weakness poses a risk to the U.S. economic outlook. Volume remained light, with mainland Chinese markets continuing their lunar new year holidays break, while Japanese markets were closed for a national holiday. However, the yen continued to rally, while equity markets in Hong Kong and South Korea closed lower after returning to action for the first time this week after being closed for the aforementioned lunar new year holidays. Indian securities tumbled, while Australian issues bucked the global trend and finished higher, aided by an upside reversal for stocks in the financial sector.
The international economic docket for tomorrow will offer car sales from India and investment lending from Australia. Releases from across the pond are expected to include the Wholesale Price Index, CPI and GDP from Germany, non-farm payrolls from France, GDP from Italy, construction output from the U.K. and industrial production from the eurozone.
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