Lack of News Provides Little Means for a Catalyst

Charles Schwab: On the Market

Posted: 3/8/2016 4:15 PM ET

Lack of News Provides Little Means for a Catalyst

With little in the way of news from the equity and economic fronts for investors to grab hold of, U.S equities finished lower, as a disappointing trade report out of China sapped sentiment early on, while a decline in oil prices pressured the energy sector. Meanwhile, the element of caution may have added to the mix ahead of Thursday's key European Central Bank monetary policy decision. Treasuries were higher and the U.S dollar saw a modest gain, while gold was lower.

The Dow Jones Industrial Average (DJIA) fell 110 points (0.6%) to 16,964 and the S&P 500 Index was 23 points (1.1%) lower at 1,979, while the Nasdaq Composite tumbled 59 points (1.2%) to 4,649. In heavy volume, 1.1 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.40 to $36.50 per barrel and wholesale gasoline was unchanged at $1.39 per gallon, while the Bloomberg gold spot price declined $6.89 to $1,260.44 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 97.18.

Dick's Sporting Goods Inc. (DKS $45) reported 4Q earnings-per-share (EPS) of $1.13, below the $1.15 FactSet estimate, as revenues increased 3.7% year-over-year (y/y) to $2.2 billion, south of the expected $2.3 billion. 4Q same-store sales fell 2.5% y/y, compared to the forecasted 1.7% decline, with the company noting the negative impact of unseasonably warm weather conditions. DKS issued softer-than-projected 1Q and full-year EPS guidance. Shares overcame early losses and finished higher, possibly aided by talk on the company's' conference call with analysts about the potential opportunity to gain market share in the wake of Sports Authority Inc's recent bankruptcy filing.

Urban Outfitters Inc. (URBN $33) posted 4Q profits of $0.61 per share, above the estimated $0.56, on previously announced flat y/y revenues of $1.0 billion and a same-store sales decline of 2.0%. The company said while apparel sales underperformed during the quarter its merchandise margin improved. URBN rallied over 15%.

Small business optimism surprisingly declines

The National Federation of Independent Business (NFIB) Small Business Optimism Index for February declined to 92.9 from January's 93.9 level, and versus the Bloomberg forecast calling for a slight increase to 94.0.

Treasuries finished solidly higher, with the yield on the 2-year note falling 5 basis points (bps) to 0.86%, while the yields on the 10-year note and the 30-year bond dropped 8 bps to 1.83% and 2.62%, respectively. For more on the bond markets see Schwab's Chief Fixed Income Strategist, Kathy Jones', article, Don't Look Back: Surviving in a Low-Yield World, at www.schwab.com/marketinsight, and follow Kathy on Twitter: @kathyjones.

Items set for release on this week's light economic calendar for tomorrow include wholesale inventories, expected to have fallen 0.2% month-over-month (m/m) during January following the 0.1% m/m decline in December, as well as MBA Mortgage Applications.

Europe and Asia mostly lower as China trade data disappoints

European equities finished lower, with data out of China and the eurozone being eyed ahead of Thursday's key monetary policy decision from the European Central Bank (ECB). Expectations of further ECB stimulus measures have supported the recent rally in European equities and as noted in the Schwab Market Perspective: Neutral Does Not Mean Boring, the ECB needs to avoid actions that may undermine the financial sector to help sustain the stock market rally. Investors may want to watch for several key developments that could help determine the direction for Europe’s stock market. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.

Mining stocks weighed on the markets following a disappointing Chinese trade report, which showed exports dropped by the most since 2009. Also, oil & gas issues saw pressure amid the slide in crude oil prices. However, Germany reported a much stronger-than-expected rise in industrial production, which jumped the most since September 2009, while eurozone 4Q GDP growth was unrevised at a 0.3% quarter-over-quarter (q/q) pace, matching forecasts and the expansion seen in 3Q. The euro was slightly higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mostly to the downside as traders digested a disappointing February Chinese trade report, while some strength in the yen pressured Japanese stocks. China's exports in U.S. dollar terms tumbled 25.4% y/y—the largest decline since May 2009—after January's 11.2% decrease and compared to the expected 14.5% fall. Imports also dropped a larger-than-expected 13.8%. For our latest on China, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Trust but Verify: Five Independent Indicators of China's Economy, at www.schwab.com/oninternational, and follow Jeff on Twitter: @jeffreykleintop.

Mainland Chinese stocks ticked higher as continued optimism of further government stimulus measures offset the trade data, but markets in Hong Kong declined on the report. Japanese equities traded lower, as the strength in the yen was met with the nation's 4Q GDP revision, which showed although being favorably adjusted, output still showed a contraction. The country's 4Q GDP was adjusted to a 0.3% quarter-over-quarter decline, from the previously reported 0.4% decrease, where economists had expected it to remain, and compared to the 0.3% expansion posted in 3Q. Meanwhile, stocks in Australia and South Korea's Kospi Index finished lower, but those traded in in India ticked higher, returning to action following yesterday's holiday break.

In a quiet international economic calendar, more data from China is on tap for tomorrow, with the Asian nation expected to release lending statistics, while the U.K. will report industrial and manufacturing production.

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.