Bullish Gains Coerced Despite Oil's Price Reverse

Charles Schwab: On the Market

Posted: 3/30/2016 4:15 PM ET

Bullish Gains Coerced Despite Oil's Price Reverse

U.S. equities closed the regular trading session nicely higher with tech and financial stocks leading the advance to extend yesterday's gains that transpired following Fed Chair Yellen's speech. Gold and the U.S. dollar were lower and Treasuries were mixed, while crude oil prices gave up an early advance and finished nearly unchanged. Lululemon reported 4Q earnings and ADP's employment report slightly exceeded expectations.

The Dow Jones Industrial Average (DJIA) rose 84 points (0.5%) to 17,717, the S&P 500 Index added 9 points (0.4%) to 2,064, and the Nasdaq Composite advanced 23 points (0.5%) to 4,869. In moderate volume, 824 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.04 higher to $38.32 per barrel, wholesale gasoline was $0.01 lower at $1.47 per gallon and the Bloomberg gold spot price declined $16.19 to $1,226.02 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.81.

Lululemon Athletica Inc. (LULU $68) reported 4Q earnings-per-share (EPS) of $0.85, above the $0.80 FactSet estimate, as revenues grew 17.0% year-over-year (y/y) to $704 million, north of the forecasted $693 million. 4Q same-store sales rose 5.0% y/y, versus the expected 4.2% gain. Shares finished sharply higher even as LULU issued softer-than-expected 1Q and full-year profit guidance.

Restoration Hardware Holdings Inc. (RH $41) offered lower-than-projected 1Q and full-year 2016 guidance after posting 4Q EPS of $0.98, one penny below its previous guidance. The company's previously reported 4Q revenues of $647 million matched estimates. RH noted that its 2016 results will be impacted by certain investments largely related to customer accommodations due to RH Modern production delays. Shares, which have fallen nearly 60% since November, traded solidly higher despite the report.

ADP employment report slightly stronger than expected

The ADP Employment Change Report showed private sector payrolls rose by 200,000 jobs in March, versus the Bloomberg forecast of a 195,000 increase, while February's gain of 214,000 jobs was revised to a 205,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday's broader March nonfarm payroll report, expected to show an increase of 205,000 jobs, while private sector payrolls are expected to rise of 190,000 (economic calendar). The unemployment rate is forecasted to remain at 4.9% and average hourly earnings are projected to rise 0.2% month-over-month (m/m).

The MBA Mortgage Application Index declined 1.0% last week, after dropping 3.3% in the previous week. The decrease came as a 3.3% fall in the Refinance Index more than overshadowed a 2.1% increase for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 3.94%.

Treasuries were mixed, with the yield on the 2-year note dipping 3 bps to 0.75%, while the yield on the 10-year note increased 2 bps to 1.82% and the 30-year bond rate gained 5 bps to 2.65%. For more on fixed income investing, see Schwab's Director of Income Planning, Rob Williams', article, How to Build a Bond Portfolio, at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

Also, for our latest analysis of the current stock market environment, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, Echo: Are Stocks Getting Back in Cycle?, and Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Risks to the Rally: What Could End the Stock Market Rebound?. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Jeff on Twitter: @lizannsonders and @jeffreykleintop.

Tomorrow, the U.S. economic calendar will yield the release of the Chicago Purchasing Managers Index for March, expected to show activity in the Midwest improved to 50.8 from the 47.6 posted in February, where 50.0 represents the demarcation point between expansion and contraction. We will also receive weekly initial jobless claims, which are forecasted to remain at the previous week's 265,000 level.

Europe rallies and Asia mostly higher following Fed Yellen's speech

European equities moved solidly higher, with oil & gas and basic materials stocks rebounding sharply, while the global markets got a boost from yesterday's speech from U.S. Federal Reserve Chairwoman Janet Yellen. The Fed Chief suggested it is appropriate for the Central Bank to proceed cautiously in adjusting policy, easing concerns about a near-term rate hike. The U.S. dollar extended its losses that ensued following Yellen's comments, bolstering commodity prices and the euro, while bond yields in the region were mixed. In economic news, German consumer price inflation came in hotter than expected for March, though eurozone economic confidence slipped for this month.

Stocks in Asia finished mostly to the upside, with U.S. Fed Chair Yellen's dovish tone easing concerns about an imminent rate hike. Schwab's Director of International Research, Michelle Gibley, CFA, offers a look at the global monetary policy landscape in her article, Are Central Banks Out of Options?, at www.schwab.com/oninternational, and be sure to follow Schwab on Twitter: @schwabresearch. Stocks trading in mainland China and Hong Kong rallied as the eased U.S. rate hike concerns were accompanied by some upbeat earnings reports in the nation. South Korean equities rose and Indian securities posted a solid advance to snap a two-session losing streak, as emerging markets extended their rally, bolstered by Yellen's comments. Australian stocks ticked higher, with gains being limited by weakness in oil & gas issues as crude oil prices fell yesterday. However, Japanese equities bucked the global equity trend and traded lower, with the yen gaining ground as the U.S. dollar dropped on Yellen's comments, while a report showed Japanese industrial production in February fell more than expected.

The international economic docket for tomorrow will include housing starts from Japan, industrial production from South Korea and new home sales and private sector credit from Australia. Releases from across the pond will include consumer confidence and 4Q GDP from the U.K., retail sales and unemployment claims from Germany, CPI for the eurozone and CPI and PPI from Italy and France.

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.