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Wednesday, April 20, 2016

Oil Rebound Helps Power Gains for Equities

Charles Schwab: On the Market
Posted: 4/20/2016 4:15 PM ET

Oil Rebound Helps Power Gains for Equities

U.S. stocks closed the regular trading session higher despite some mixed quarterly reports from Dow members Intel and Coca-Cola as crude oil prices reversed from early losses and closed solidly higher. Treasuries turned lower on the heels of a report that showed a solid rebound for domestic existing home sales, while weekly mortgage applications increased. Gold was lower and the U.S. dollar advanced.

The Dow Jones Industrial Average (DJIA) rose 43 points (0.2%) to 18,096, the S&P 500 Index added 2 points (0.1%) to 2,102, and the Nasdaq Composite increased 8 points (0.2%) to 4,948. In moderately-heavy volume, 965 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.71 to $44.18 per barrel, wholesale gasoline was $0.04 higher at $1.48 per gallon and the Bloomberg gold spot price ticked $4.90 lower to $1,251.36 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 94.53.

Dow member Intel Corp. (INTC $32) reported 1Q earnings-per-share (EPS) ex-items of $0.54, above the $0.47 FactSet estimate, as revenues rose 8.0% year-over-year (y/y) to $13.8 billion, versus the expected $13.7 billion. The company issued softer-than-expected 2Q revenue guidance and lowered its full-year revenue and gross margin outlooks. Separately, INTC announced a succession plan for its chief financial officer (CFO) and a restructuring plan that includes the reduction of up to 12,000 jobs globally. Shares overcame early pressure and finished higher.

Dow component Coca-Cola Co. (KO $44) posted 1Q profits ex-items of $0.45 per share, one penny north of expectations, with revenues declining 4.0% y/y to $10.3 billion, roughly in line with forecasts. However, the company's worldwide case volume growth of 2.0% came in slightly below analysts' expectations. KO issued roughly in line full-year guidance, though it noted expectations of foreign exchange headwinds. Shares were noticeably lower.

Yahoo Inc. (YHOO $38) announced 1Q EPS ex-items of $0.08, one cent above estimates, with revenues excluding traffic acquisition costs (TAC) falling 17.6% y/y to $859 million, versus the projected $846 million. YHOO issued softer-than-expected 2Q revenue guidance, while reaffirming its full-year revenue outlook. Shares gained ground as the Street appeared to be focused on the company potentially attracting a buyer, with Chief Executive Officer Mayer noting that the review of strategic alternatives remains the top priority of the company.

For our latest analysis on earnings season, read Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Earnings Season for Investors: It's a Marathon, Not a Sprint, at, and follow Jeff on Twitter: @jeffreykleintop.

March existing home sales rise solidly, slightly topping forecasts

Existing-home sales in March rose 5.1% month-over-month (m/m) to a 5.33 million annual rate, compared to the Bloomberg forecast of a rise to a 5.28 million pace. February's figure was revised modestly lower to a 5.07 million annual rate. Sales were 1.5% higher y/y. The median existing-home price was 5.7% higher versus a year ago at $222,700, and housing supply came in at a 4.5-month pace at the current sales rate. Sales rose in all four regions, led by solid gains in the Northeast and Midwest. National Association of Realtors (NAR) chief economist Lawrence Yun said home sales had a nice rebound in March following February's uncharacteristically large decline. He added, "closings came back in force," overcoming depressed inventory levels and steady price growth, and buyer demand remains sturdy.

The report adds credence to Schwab's Chief Investment Strategist Liz Ann Sonders' article, Recession: Your Time is Gonna Come … But Not Yet, where she points out that U.S. data has improved markedly since the beginning of this year. Liz Ann offers data that support her conclusion that although we’re unlikely to exit from a muddle-through state, the risk of recession is objectively low. Read more at and follow Liz Ann on Twitter: @lizannsonders.

The MBA Mortgage Application Index increased 1.3% last week, after jumping 10.0% in the previous week. The modest rise came as a 2.6% gain for the Refinance Index more than offset a 0.5% decrease for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point (bp) higher to 3.83%.

Treasuries were lower, with the yield on the 2-year note rising 4 bps to 0.79%, while the yields on the 10-year note and the 30-year bond increased 6 bps to 1.85% and 2.66%, respectively. For our latest analysis on the bond markets see our latest video by Schwab's Chief Fixed Income Strategist, Kathy Jones and Schwab's Managing Director of Trading and Derivatives, Randy Frederick, titled, Rate Hike—No Rate Hike: What's the Smart Bond Move?, by clicking on the "Insights & Ideas" tab at and continuing to the "Market Commentary" section. Also, Schwab's Director of Income Planning, Rob Williams, offers a look at bond investing for retirement in his article, Bond Ladders: A Useful Tool for Retirement Income. Follow Schwab, Kathy and Randy on Twitter: @schwabresearch, @kathyjones and @randyafrederick.

Tomorrow, the U.S. economic calendar will begin with weekly initial jobless claims, forecasted to have risen to 265,000 from the prior week's 253,000 level, and the Philly Fed Manufacturing Index, forecasted to show a slight decline a level of 9.0 for April from 12.4 in March, but a level above zero denotes expansion in activity. Rounding out the domestic docket reports, the Index for Leading Economic Indicators (LEI) will be released, with economists anticipating a 0.4% m/m increase for March following the 0.1% rise seen in the prior month.

Europe moves higher ahead of ECB decision, Asia mixed as Chinese stocks fall 

European equities finished higher, though caution likely prevailed ahead of tomorrow's monetary policy decision from the European Central Bank (ECB). The ECB is not expected to change monetary policy after boosting its stimulus measures at its March meeting. Crude oil prices were in focus with early pressure coming on reports the worker strike in Kuwait, which had reduced the nation's production, has ended. However, crude oil prices reversed to the upside late in the European trading session following a slightly smaller-than-expected rise in U.S. oil inventories. In economic news, U.K. employment growth came in below expectations. The euro declined versus the U.S. dollar, while bond yields in the region moved mostly lower.

Stocks in Asia finished mixed as oil prices saw pressure on reports that the worker strike in Kuwait ended. Japanese equities pared some early gains, but still advanced amid the pressure on oil prices and as the yen strengthened late in the day. Stocks in Australia rose, aided by a rally in basic materials issues as some major mining companies have announced iron ore production forecast cuts that eased oversupply concerns, while Indian equities also ticked higher and South Korean securities declined.

Chinese stocks fell but finished well off of the worst levels of the day, as nothing specific stood out as a catalyst for the declines, though Bloomberg noted that the recent string of favorable data may be dampening further stimulus expectations and some analysts cited investor concerns that the surge in volatility that was seen at the beginning of the year may return. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, provides analysis of China in his article, Trust but Verify: Five Independent Indicators of China's Economy, and Schwab's Director of International Research, Michelle Gibley, CFA, offers 5 Reasons China Won't Crash the Global Economy in 2016, at, and follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

In addition to the aforementioned European Central Bank decision, the international economic docket for tomorrow will be light, offering retail sales from the U.K. and business confidence from 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.

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