Charles Schwab: On the MarketPosted: 4/6/2016 4:15 PM ET
Stocks Hold Higher on Health Care Rally
U.S. stocks traded nicely higher as traders weighed the afternoon release of the Fed minutes, while crude oil prices jumped in the wake of an unexpected drop in domestic oil inventories. Also, the health care sector rallied on the news of a terminated merger agreement between Dow member Pfizer and Allergan. Treasuries, gold and the U.S. dollar were all lower.
The Dow Jones Industrial Average (DJIA) gained 113 points (0.6%) to 17,716, the S&P 500 Index increased 21 points (1.1%) to 2,067, and the Nasdaq Composite advanced 77 points (1.6%) to 4,921. In moderate volume, 854 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rallied $1.86 to $37.75 per barrel, wholesale gasoline was $0.01 higher at $1.39 per gallon and the Bloomberg gold spot price declined $7.74 to $1,223.61 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 94.46.
Dow member Pfizer Inc. (PFE $33) announced that the planned $160 billion merger agreement with Allergan PLC. (AGN $245) has been terminated by mutual agreement of the companies. The terminated deal comes in the wake of the U.S. Treasury Department's new rules announced on Monday aimed at limiting tax-cutting power of corporate inversions. In connection with the announcement, PFE has agreed to pay AGN $150 million for reimbursement of expenses associated with the transaction. PFE also said it plans to decide whether to pursue a potential separation of its innovative and established businesses by no later than the end of 2016. Shares of both companies traded higher.
Halliburton Co. (HAL $36) and Baker Hughes Inc. (BHI $43) announced that they intend to vigorously contest the U.S. Department of Justice's (DOJ) effort to block their pending merger. The companies said they believe that the DOJ has reached the wrong conclusion in its assessment of the transaction and that its action is counterproductive, especially in the context of the challenges the U.S. and global energy industry are currently experiencing. Shares of both companies finished higher.
Constellation Brands Inc. (STZ $160) reported fiscal 4Q earnings-per-share (EPS) of $1.19, above the $1.14 FactSet estimate, as revenues rose 14.0% year-over-year (y/y) to $1.5 billion, roughly in line with forecasts. STZ issued current year profit guidance that had a midpoint above analysts' expectations, while announcing a 29% increase of its quarterly dividend to $0.40 per share. Separately, the company announced the acquisition of The Prisoner Wine Company's portfolio of brands, though terms were not disclosed, and that it is evaluating plans to execute an IPO for a portion of its Canadian wine business. STZ closed nicely higher.
Monsanto Co. (MON $87) reported fiscal 2Q EPS ex-items of $2.42, matching projections, with revenues dropping 12.8% y/y to $4.5 billion, below the estimated $4.7 billion. MON reaffirmed its full-year earnings outlook. Shares were mildly higher.
Fed releases March minutes, mortgage applications rise
At 2:00 p.m. ET the Federal Open Market Committee (FOMC) released the minutes from its March monetary policy meeting, after which the Central Bank left its policy stance unchanged. The report showed that information the Committee reviewed for the meeting suggested that labor market conditions were continuing to improve in 1Q and that the pace of expansion in real gross domestic product (GDP) was picking up somewhat from the previous quarter. Consumer price inflation was still running below the Committee's longer-run objective of 2%, restrained in part by decreases in both consumer energy prices and the prices of non-energy imports. Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, offers analysis of the policy stance decision in Fed Holds…For Now, noting the FOMC wants to “normalize” policy, but of course remains 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.
The MBA Mortgage Application Index rose 2.7% last week, after declining 1.0% in the previous week. The increase came as a 6.8% gain for the Refinance Index more than overshadowed a 2.4% drop for the Purchase Index. The average 30-year mortgage rate fell 8 basis points (bps) to 3.86%.
Treasuries were lower, with the yield on the 2-year note rising 2 bps to 0.74%, the yield on the 10-year note increasing 3 bps to 1.75%, and the 30-year bond rate gaining 4 bps to 2.58%. 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 morning release of weekly initial jobless claims, forecasted to have declined by 6,000 from the previous week to a level of 270,000. Also, the final hour of trading will commence with the February consumer credit report, which is expected to show consumer borrowing expanded by $14.9 billion after increasing by $10.5 billion in January.
Europe shows late-day strength, Asia mixed following China data and continued yen rally
European equities finished higher after rallying late in the session, aided by a recovery in oil prices following a bullish U.S. oil inventory report and renewed optimism of a potential oil output freeze after comments from Kuwait ahead of a meeting of major world producers scheduled in April. Health care issues rallied, bolstered by the terminated merger between Pfizer and Allergan, while traders awaited today's release in the U.S. of the minutes from the Fed's March monetary policy meeting. In economic news, German industrial production fell in February but by a smaller amount than anticipated. The euro reversed to the upside versus the U.S. dollar, while bond yields in the region mostly moved to the upside.
Stocks in Asia finished mixed with the continued rally in the yen, which sits at an 18-month high versus the U.S. dollar, hamstringing Japanese equities. Mainland Chinese stocks were lower and those trading in Hong Kong ticked higher as banking stocks found pressure, though a read on the nation's services sector painted a positive picture. The Caixin/Markit China PMI Services Index improved to 52.2 for March, from 51.2 in February, suggesting growth in the key services sector accelerated, as a reading above 50 denotes expansion. Strength in oil & gas issues on the rebound in oil prices helped push Australian equities higher, while South Korean stocks also gained ground. Finally, securities trading in India ticked slightly higher in choppy trading as traders continued to digest yesterday's monetary policy decision by the Reserve Bank of India to cut its benchmark interest rate while raising a different rate. For more on the global monetary policy landscape, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, Are Central Banks Out of Options?, at www.schwab.com/oninternational. Also, follow Schwab on Twitter: @schwabresearch.
The international economic docket for tomorrow will be light, yielding house prices from the U.K. and the trade balance for France.
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