A Difference in a Day

Charles Schwab: On the Market

Posted: 5/11/2016 4:15 PM ET

A Difference in a Day

With little in the way of economic news to help the markets, some disappointing earnings reports and a failed merger took center stage, pushing stocks lower and nearly erasing all of yesterday's gains. However, a nice gain in crude oil prices helped to limit the losses in the energy sector, following an unexpected drop in U.S. oil inventories. Treasuries and gold were higher, while the U.S. dollar finished lower.

The Dow Jones Industrial Average (DJIA) tumbled 217 points (1.2%) to 17,711, the S&P 500 Index fell 20 points (1.0%) to 2,064, and the Nasdaq Composite was 49 points (1.0%) lower at 4,761. In moderately-heavy volume, 930 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil rose $1.57 to $46.23 per barrel, wholesale gasoline jumped $0.09 to $1.58 per gallon, and the Bloomberg gold spot price rose $10.15 to $1,275.99 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 93.79.

Dow member Walt Disney Co. (DIS $102) reported fiscal 2Q earnings-per-share (EPS) ex-items of $1.36, three cents below the FactSet estimate, as revenues rose 4.0% year-over-year (y/y) to $13.0 billion, south of the projected $13.2 billion. Revenue at DIS' cable networks segment declined y/y amid lower advertising sales at ESPN, while its studio entertainment revenues jumped. Shares were solidly lower.

Macy's Inc. (M $31) posted 1Q EPS ex-items of $0.40, above the $0.36 expectation, with revenues decreasing 7.4% y/y to $5.8 billion, below the projected $5.9 billion. 1Q same-store sales fell 5.6% y/y, wider than the estimated 3.4% decline. The company said it is seeing continued weakness in consumer spending levels for apparel and related categories, while headwinds continued in spending from international visitors in major tourist markets. M lowered its full-year guidance and shares were sharply lower.

Staples Inc. (SPLS $8) and Office Depot Inc. (ODP $4) terminated their planned merger after the U.S. District Court granted the Federal Trade Commission's (FTC) request for a preliminary injunction to block the proposed merger. ODP responded by saying it is disappointed by the decision and it strongly believes that a merger would have benefitted all of its customers long term, adding that it does not intend to appeal the decision. SPLS also expressed disappointment and said it will not appeal the decision, while announcing a strategic plan, including store closures and a plan to explore strategic alternatives for its European operations. Shares of both companies tumbled.

Electronic Arts Inc. (EA $73) announced fiscal 4Q earnings of $0.50 per share, above the expected $0.42, with revenues rising 3.1% y/y to $924 million, north of the forecasted $889 million. EA issued softer-than-expected 1Q guidance, including an unexpected loss, while it delivered an in line full-year EPS outlook and a revenue forecast that was above projections. Shares of EA rallied.

Mortgage applications tick higher

The MBA Mortgage Application Index increased 0.4% last week, after dropping 3.4% in the previous week. The slight gain came as a 0.5% rise for the Refinance Index was met with a 0.4% advance for the Purchase Index. The average 30-year mortgage rate fell 5 basis points (bps) to 3.82%.

EA $73) announced fiscal 4Q earnings of $0.50 per share, above the expected $0.42, with revenues rising 3.1% y/y to $924 million, north of the forecasted $889 million. EA issued softer-than-expected 1Q guidance, including an unexpected loss, while it delivered an in line full-year EPS outlook and a revenue forecast that was above projections. Shares of EA rallied. 5 Cases Where Out-of-State Munis Might Make Sense, at www.schwab.com/marketinsight. Follow Schwab on Twitter: @schwabresearch.

For our latest analysis on the stock markets see Schwab's Chief Investment Strategist, Liz Ann Sonders' article, Against the Wind: The Sentiment-Driven Rally Could Take a Breather, at www.schwab.com/marketinsight. Be sure to follow Liz Ann on Twitter: @lizannsonders.

Tomorrow, investors will get a look at the Import Price Index, forecasted to have risen 0.6% month-over-month (m/m) during April, coming off a 0.2% increase in March, as well as weekly initial jobless claims, with economists anticipating a level of 270,000, a tad lower than the 274,000 posted the week prior.

Europe lower as banks continue to be hampered, Asia mixed

European stocks finished mostly lower, amid a plethora of mixed earnings reports, with the banking sector continuing to be pressured by sluggish results out of the group. Also, the upside reversal in crude oil prices as U.S. oil inventories surprisingly fell lifted the energy sector. Sentiment may have been hampered by a report showing U.K. industrial and manufacturing production both missed expectations, ahead of tomorrow's monetary policy decision from the Bank of England (BoE). The data suggests uncertainty regarding a potential U.K. exit from the European Union, known as Brexit, could be weighing on economic activity. At its last meeting, the BoE warned that the June referendum on a Brexit, could be hampering economic growth and Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, discusses the possible implications in his article, Brexit: 5 Things Investors Need to Know, at www.schwab.com/marketinsight. Also, follow Jeff on Twitter: @jeffreykleintop. The euro and the British pound gained ground on the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed, with a late-day jump in the yen hamstringing the Japanese markets, while Chinese equities diverged as traders await more economic data slated for later this week. Japanese equities ticked higher, giving up most of its early gains as the yen rallied late in the day following a two-day pullback from its recent surge. Mainland Chinese stocks finished higher, while the Hong Kong fell, amid heightened uncertainty regarding further monetary policy support and as recent economic data has been mixed. China is due to report more economic data later this week, including reports on industrial production and retail sales. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, discusses China data in his article, Trust but Verify: Five Independent Indicators of China's Economy. Also, Schwab's Director of International Research, Michelle Gibley, CFA, offers 5 Reasons China Won't Crash the Global Economy in 2016. Read more at www.schwab.com/oninternational, and be sure to follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch. Finally, Australia's markets rose, aided by a solid rise in the nation's consumer confidence and a rebound in basic materials stocks, while stocks traded in India and South Korea dipped.

Items set for release on tomorrow's international economic calendar include trade data from Japan, CPI from France, and industrial production from the Eurozone.

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.