Charles Schwab: On the MarketPosted: 3/29/2016 4:15 PM ET
Yellen Comments Give Stocks a Lift
U.S. stocks finished higher, getting a boost on comments from Federal Reserve Chairwoman Janet Yellen in her speech to the Economic Club of New York, while a decline in crude oil prices tempered the gains in the energy sector. Treasuries and gold got a lift from Yellen's comments, while the U.S. dollar accelerated to the downside. Meanwhile, equity headlines consisted of some better-than-expected earnings reports.
The Dow Jones Industrial Average (DJIA) rose 98 points (0.6%) to 17,633, the S&P 500 Index added 18 points (0.9%) to 2,055, while the Nasdaq Composite rallied 80 points (1.8%) to 4,847. In moderately-heavy volume, 969 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil fell $1.11 lower to $38.28 per barrel, wholesale gasoline was $0.02 lower at $1.48 per gallon and the Bloomberg gold spot price jumped $19.24 to $1,240.95 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.9% lower at 95.11.
Lennar Corp. (LEN $48) reported fiscal 1Q earnings-per-share (EPS) of $0.63, above the $0.52 FactSet estimate, as revenues rose 21.3% year-over-year (y/y) to $2.0 billion, versus the expected $1.9 billion. The homebuilder said it continues to believe that the housing market is continuing its slow and steady recovery driven by years of under production, tight inventory levels, attractive interest rates and the lowest unemployment levels since 2008. LEN was higher.
McCormick & Co. (MKC $99) posted fiscal 1Q EPS ex-items of $0.74, compared to the projected $0.69, with revenues increasing 2.0% y/y to $1.0 billion, roughly in line with expectations. The company forecasted slightly lower y/y 2Q earnings, and offered roughly in line full-year profit guidance, while noting that it expects a lower impact from unfavorable foreign currency exchange rates. Shares finished nicely higher.
Consumer Confidence improves, Yellen stresses caution in speech
The Consumer Confidence Index (chart) rose to 96.2 in March from the upwardly revised 94.0 level in February, where the Bloomberg estimate called for it to remain. Sentiment toward the present situation declined compared to the prior month, while expectations of business conditions rose. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—decreased to -1.2 from the -0.8 posted last month.
The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.8% y/y in January, versus the Bloomberg expectation of a 5.7% rise. Month-over-month (m/m), home prices were higher by 0.8% on a seasonally adjusted basis for January, above forecasts of a 0.7% increase.
Federal Reserve Chairwoman Janet Yellen delivered her speech to the Economic Club of New York, where she pointed out that the Federal Open Market Committee's (FOMC) projections for economic growth, unemployment, and inflation are little changed from its estimates that accompanied its monetary policy decision earlier this month. The March decision reminded us that the FOMC continues to be a bit more hawkish than the market, but appeared to be more dovish than the market was expecting, as discussed by Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, in his article, Fed Holds…For Now.
Yellen added that she considers it appropriate for the FOMC to proceed cautiously in adjusting policy. "This caution is especially warranted because, with the federal funds rate so low, the FOMC's ability to use conventional monetary policy to respond to economic disturbances is asymmetric," the Fed Chair stressed. As Brad points out in the above article, the Fed wants to “normalize” policy, but of course remain data dependent, and international developments will likely have a large impact on their ability to move toward that goal. Inflation has ticked higher, but economic growth remains modest, meaning the Fed will continue to try to be gradual in their approach. But given the disconnect with the market, and the divergent global central bank policies, financial market volatility is likely to continue. Read more 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 Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Risks to the Rally: What Could End the Stock Market Rebound?, and Schwab's Chief Investment Strategist Liz Ann Sonders' article, Echo: Are Stocks Getting Back in Cycle?. Read both articles at www.schwab.com/marketinsight and follow Jeff and Liz Ann on Twitter: @jeffreykleintop and @lizannsonders.
Treasuries added to gains on Yellen's comments to finish higher, as the yield on the 2-year note fell 9 basis points (bps) to 0.78%, the yield on the 10-year note declined 8 bps to 1.81%, while the 30-year bond rate lost 6 bps to 2.60%. 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.
The domestic economic calendar for tomorrow will offer the ADP Employment Change Report, forecasted to show private sector jobs increased by 195,000 during March after posting a gain of 214,000 in February, as well as MBA mortgage Applications.
Europe shows late-day resiliency in return to action, Asia mixed
European equities overcame early sluggishness to finish mostly higher, with the region returning to action following the extended Easter holiday weekend, while data in the region was on the light side. However, conviction was likely contained as the global markets awaited today's speech by Federal Reserve Chairwoman Janet Yellen, and weaker oil prices pressured the energy sector. The euro ticked higher versus the U.S. dollar, while bond yields in the region lost ground. In economic news, Italian consumer confidence unexpectedly improved for March, while a separate read on the nation's business confidence for this month missed expectations.
Stocks in Asia finished mixed with traders likely moving cautiously ahead of today's speech by Fed Chair Yellen, while markets in Australia and Hong Kong returned to action following the long Easter holiday weekend. Japanese equities declined, with a majority of stocks trading for the first time after being adjusted for their next dividend payments, per Bloomberg. Stocks found some support from some late-day weakness in the yen and an unexpected rise in Japan's overall household spending for February. However, separate reports showed the nation's jobless rate surprisingly ticked higher and retail sales dropped more than expected for last month.
With recent moves to tighten property purchase rules by some major cities continuing to weigh on real estate issues, mainland Chinese stocks fell, while those traded in Hong Kong ticked only slightly higher. Elsewhere, weakness in financials pressured Australian stocks, but South Korean listings advanced, while, India's markets declined ahead of Yellen's speech and next week's monetary policy decision from the Reserve Bank of India, which is expected to cut some of its benchmark lending rates by 25 bps. 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.
Tomorrow's international economic calendar will be busy, with reports set to be released to include: industrial production and trade data from Japan, the trade balance from China, confidence numbers from the eurozone, and CPI from Germany.
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