Charles Schwab: On the MarketPosted: 4/14/2016 4:15 PM ET
Stocks Finish Mostly Flat
U.S. stocks finished the regular trading session mixed and near the flatline, as financials continued their recent rally to lead gains. Traders may have been exercising some caution ahead of tonight's release of China's 1Q GDP, while in domestic economic news, consumer inflation was cooler than expected and jobless claims unexpectedly dropped. Treasuries, gold and crude oil prices were lower and the U.S. dollar was higher.
The Dow Jones Industrial Average (DJIA) gained 18 points (0.1%) to 17,926, the S&P 500 Index was flat at 2,083, and the Nasdaq Composite inched 2 points lower to 4,946. In moderate volume, 876 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq. WTI crude oil dipped $0.26 to $41.50 per barrel, wholesale gasoline was $0.02 lower at $1.51 per gallon and the Bloomberg gold spot price declined $17.11 to $1,225.36 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 94.95.
Bank of America Corp. (BAC $14) reported 1Q earnings-per-share (EPS) of $0.21, in line with the FactSet estimate, as revenues declined 6.7% year-over-year (y/y) to $19.5 billion, compared to the expected $20.3 billion. The company saw equity and fixed income trading revenues fall and provisions for bad loans from the energy sector more than doubled, while it said it benefitted from good consumer and commercial banking activity. Shares moved higher.
Wells Fargo & Co. (WFC $49) posted 1Q EPS of $0.99, above the projected $0.97, as revenues grew 4.0% y/y to $22.2 billion, above the estimated $21.5 billion. The company said while the challenges in the energy industry and persistent low rates impacted its bottom line, its diversified business model was again beneficial to its results. Shares dipped.
Delta Air Lines Inc. (DAL $48) announced 1Q earnings ex-items of $1.32 per share, two cents north of expectations, with revenues declining 1.5% y/y to $9.3 billion, roughly in line with forecasts. The company said the momentum with its commercial initiatives allowed it to maintain its top line performance during the quarter despite 40% lower market fuel prices and pressure from foreign currency. DAL traded higher.
Seagate Technology PLC. (STX $27) lowered its 3Q revenue and gross margin guidance. The storage solutions company noted that it is disappointed that it did not anticipate the weaker demand in the quarter, as there are many complex issues impacting the traditional go to market channels in its market, which are reducing its forecast visibility. Shares fell 20%.
Consumer price inflation cooler than expected, jobless claims surprisingly fall
The Consumer Price Index (CPI) (chart) was up 0.1% month-over-month (m/m) in March, below the Bloomberg forecast of a 0.2% increase, while February's 0.2% decline was unrevised. The core rate, which strips out food and energy, rose 0.1% m/m, compared to expectations of a 0.2% increase, and February's unrevised 0.3% gain. Y/Y, prices were 0.9% higher for the headline rate, versus forecasts of a 1.0% gain, while the core rate was up 2.2%, south of projections of a 2.3% rise. February's y/y figures showed an unrevised 1.0% rise and an unadjusted 2.3% increase for the headline and core rates respectively.
Weekly initial jobless claims (chart) fell by 13,000 to 253,000 last week, versus estimates calling for claims to increase to 270,000, as the prior week's figure was revised lower by 1,000 to 266,000. The four-week moving average declined by 1,500 to 265,000, while continuing claims dropped by 18,000 to 2,171,000, south of the estimated level of 2,183,000.
Treasuries were lower, with the yields on the 2-year note and the 30-year bond rising 2 basis points (bps) to 0.77% and 2.60%, respectively, while the yield on the 10-year note gained 3 bps to 1.79%. 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.
Tomorrow the U.S. economic calendar will begin with the Empire Manufacturing Index, which is anticipated to improve slightly to 2.00 in April from the 0.62 level the month prior, with a reading above zero denoting expansion. Also, the Federal Reserve will release its industrial production and capacity utilization report for March, with production forecasted to decline 0.1% m/m after the prior month's 0.5% drop, and utilization is projected to dip to 75.3% from 76.7%. Finally, after the opening bell, we will get the preliminary April University of Michigan Consumer Sentiment Index, forecasted to tick higher to 92.0 from March's 91.0 level.
Europe and Asia tick higher
European equities finished modestly higher, with traders digesting a heating up earnings season as well as the monetary policy decision from the Bank of England (BoE). The BoE held its monetary policy stance steady as expected, voting unanimously to keep its benchmark interest rate unchanged at a record low of 0.50% and maintaining its asset purchase target. However, the central bank warned that the June referendum on whether the U.K. should leave the European Union, known as Brexit, could be hampering economic growth, while a vote for a Brexit could have a significant impact on asset prices and the pound. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses the possible implications of a U.K. exit in his article, Brexit: 5 Things Investors Need to Know, at www.schwab.com/marketinsight. Also, follow Jeff on Twitter: @jeffreykleintop. In other economic news, eurozone consumer price inflation for March rose in line with forecasts. The euro dipped versus the U.S. dollar and bond yields in the region gained ground.
Stocks in Asia finished higher, following the solid advances in the U.S. and Europe yesterday as financials got a boost from upbeat results from Dow member JPMorgan Chase & Co. (JPM $62) and amid Italy's recent move to combat bad loans. Also, the Japanese yen extended its recent retreat from its surge that has pressured export-related issues, boosting equities in the island nation, while continued optimism about a stabilizing Chinese economy, ahead of tonight's plethora of data, helped sentiment. Stocks in China advanced ahead of tonight's release of reports on industrial production, fixed asset investment and retail sales for March, but the headlining report will likely be the release of 1Q GDP, forecasted to show growth slowed to 6.7% y/y, from 6.8% in 4Q. Be sure to read Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Trust but Verify: Five Independent Indicators of China's Economy, and Schwab's Director of International Research, Michelle Gibley's, CFA, article, 5 Reasons China Won't Crash the Global Economy in 2016, at www.schwab.com/oninternational, and follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch. Australian securities gained ground, buoyed by strength in basic materials and financial listings and following favorable data on the nation's March employment growth. South Korean stocks traded higher, while Indian markets were closed for a holiday.
The international economic docket for tomorrow will yield the aforementioned reports from China, industrial production and capacity utilization from Japan, construction output from the U.K. and the trade balance from Italy and the eurozone.
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