Tech and Financials Lead Decline

Charles Schwab: On the Market

Posted: 4/7/2016 4:15 PM ET

Tech and Financials Lead Decline

U.S. stocks gave back the previous session's gains and closed trading lower with technology and financials leading the broad based decline, while crude oil prices also pared some of yesterday's gains. Treasuries gained ground even as U.S. jobless claims decreased more than projected and consumer credit, released in the final hour of trading, expanded by a larger amount than expected. Gold and the U.S. dollar were higher.

The Dow Jones Industrial Average (DJIA) lost 174 points (1.0%) to 17,542, the S&P 500 Index decreased 25 points (1.2%) to 2,042, and the Nasdaq Composite tumbled 72 points (1.5%) to 4,848. In moderately-heavy volume, 925 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.49 to $37.26 per barrel and wholesale gasoline was $0.01 lower at $1.38 per gallon, while the Bloomberg gold spot price increased $17.88 to $1,240.35 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 94.55.

Bed Bath & Beyond Inc. (BBBY $49) reported fiscal 4Q earnings-per-share (EPS) ex-items of $1.85, above the $1.80 FactSet estimate, as revenues rose 2.4% year-over-year (y/y) to $3.4 billion, roughly in line with forecasts. 4Q same-store sales grew 1.7% y/y, topping the expected 0.8% gain. BBBY announced a quarterly dividend program, and declared an initial quarterly dividend of $0.125 per share, to be paid on July 19, 2016 to stockholders of record as of June 17. Shares traded higher.

ConAgra Foods Inc. (CAG $46) posted fiscal 3Q EPS ex-items of $0.68, compared to the expected $0.58, with revenues rising 0.6% y/y to $2.9 billion, mostly in line with projections. CAG said with the sale of its private label business completed, it is on track to establish two independent segments. Shares gained ground.

CarMax Inc. (KMX $49) announced fiscal 4Q profits of $0.74 per share, excluding an impairment-related charge associated with a property that the company no longer plans to use, versus the estimated $0.71, as revenues rose 5.5% y/y to $3.7 billion, roughly in line with forecasts. KMX introduced its full-year capital spending plan that was an increase from the previous year. Shares traded lower.

Valeant Pharmaceuticals International Inc. (VRX $36) traded higher after the company announced that it has obtained the requisite lender approval for the amendment and waiver to its credit facility. The company said it is comfortable with its current liquidity position and cash flow generation for the rest of the year, and remains well positioned to meet its obligations.

Consumer credit expands more than forecasted, jobless claims drop more than expected

Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $17.2 billion during February, well above the $14.9 billion forecast of economists polled by Bloomberg, while January's figure was adjusted upward to an increase of $14.9 billion from the originally reported $10.5 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $14.3 billion, while revolving debt, which includes credit cards, increased by $2.9 billion.

Weekly initial jobless claims (chart) fell by 9,000 to 267,000 last week, versus the Bloomberg estimate calling for claims to decline to 270,000, as the prior week's figure was unrevised at 276,000. The four-week moving average rose by 3,500 to 266,750, while continuing claims increased by 19,000 to 2,191,000, north of the estimated level of 2,170,000.

Treasuries were higher, with the yield on the 2-year note declining 4 basis points (bps) to 0.69% and the yields on the 10-year note and the 30-year bond dropping 7 bps to 1.69% and 2.52%, respectively. 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.

For our latest analysis of the current stock market environment, see Schwab's Chief Investment Strategist Liz Ann Sonders' article, Echo: Are Stocks Getting Back in Cycle?, and Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, What do the stock market trends in the first quarter mean for Q2 and beyond?. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Jeff on Twitter: @lizannsonders and @jeffreykleintop.

Tomorrow, the U.S. economic calendar will be light, with the lone release set to be wholesale inventories, expected to have declined 0.2% in February versus an increase of 0.3% in January.

Europe lower, Asia mixed

European equities traded lower, despite health care stocks extending their recent advance, while oil & gas issues were hampered by sluggish oil prices after yesterday's jump. Traders focused on last month's monetary policy decisions from both sides of the pond. After the European markets closed, the U.S. Federal Reserve delivered its March monetary policy meeting minutes that showed policymakers continue to grapple with the timing of further rate hikes. Meanwhile, the European Central Bank (ECB) released its March meeting minutes, which showed support for the ECB's decision to deploy further stimulus measures, including cutting the deposit rate further into negative territory, but financials led today's drop in the wake of the release, as concerns appeared to resurface about the impact of the move on bank profitability. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers analysis of central bank adoption of negative interest rates in his article, Negative Interest Rate Policy Adds Up To Less than Zero for Investors, at www.schwab.com/oninternational. Also, follow Jeff on Twitter: @jeffreykleintop. The euro dipped versus the U.S. dollar and bond yields in the region finished mixed.

Stocks in Asia finished mixed with light data fostering a lull in market catalysts, while traders digested yesterday's March meeting minutes from the U.S. Fed that showed policymakers remained divided on the path of monetary policy. Yesterday's rally in oil prices helped energy-related issues, while Japanese stocks shrugged off the extension of the yen's rally. Oil & gas issues helped push Australian stocks to the upside, while Indian equities finished lower as traders may have been cautious ahead of the looming earnings season, set to heat up next week in the subcontinent. South Korean securities ticked higher and Chinese stocks finished mixed with skepticism reigning in the wake of recent relatively favorable economic data. For our analysis on reading Chinese data see Schwab's 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.

The international economic docket for tomorrow will yield the trade balance and consumer confidence from Japan, trade data from Germany and industrial and manufacturing production from the U.K. and 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.