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Thursday, May 05, 2016

Stocks Mostly Unchanged

Charles Schwab: On the Market
Posted: 5/5/2016 4:15 PM ET

Stocks Mostly Unchanged

U.S. stocks closed the regular trading session mostly flat as early gains dissipated when crude oil prices, which were ultimately higher, came well off the apex of the day after initially spiking on the heels of some heightened tensions in Libya and reports of a massive wildfire in Canada. In equity news, a heavy dose of earnings included some mixed quarterly results from Dow member Merck & Co. Treasuries and the U.S. dollar were higher, while gold was lower.

The Dow Jones Industrial Average (DJIA) added 9 points (0.1%) to 17,661, the S&P 500 Index declined nearly a point to 2,051, and the Nasdaq Composite lost 9 points (0.2%) to 4,717. In moderately-heavy volume, 957 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil traded $0.54 higher to $44.32 per barrel, wholesale gasoline was unchanged at $1.49 per gallon, and the Bloomberg gold spot price ticked $2.09 lower to $1,277.59 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 93.76

Dow member Merck & Co. Inc. (MRK $54) reported 1Q earnings-per-share (EPS) ex-items of $0.89, above the $0.85 FactSet estimate, though revenues declined 1.0% year-over-year (y/y) to $9.3 billion, south of the forecasted $9.5 billion. MRK raised its full-year earnings outlook, while increasing the low end of its revenue guidance. Shares traded lower.

Whole Foods Market Inc. (WFM $30) posted fiscal 2Q EPS of $0.44, above the projected $0.41, with revenues rising 1.3% y/y to $3.7 billion, roughly in line with expectations. 2Q same-store sales declined 3.0% y/y, compared to the estimated 2.0% decrease. WFM lowered its full-year sales outlook but shares closed nicely higher.

Tesla Motors Inc. (TSLA $212) announced a 1Q loss of $0.57 per share, versus the forecasted $0.60 per share shortfall, as revenues rose more than 45.0% y/y to $1.6 billion, roughly in line with expectations. The electric car maker accelerated its production targets. TSLA traded solidly lower.

Kraft Heinz Co. (KHC $83) reported 1Q EPS of $0.73, above the projected $0.63, with revenues up 165.1% y/y to $6.6 billion, due to the merger of Kraft and Heinz, north of the expected $6.5 billion. KHC finished decisively to the upside.

MetLife Inc. (MET $43) posted 1Q operating profits of $1.20 per share, well below the estimated $1.38, as revenues declined 2.0% y/y to $16.6 billion, missing the forecasted $17.2 billion. MET traded lower.

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 www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop.

L Brands Inc. (LB $71) dropped after the retailer posted a 1.0% gain in April same-store sales, versus the expected 5.1% increase. Also, the company issued softer-than-expected 1Q guidance.

Jobless claims rise more than expected

Weekly initial jobless claims (chart) rose 17,000 to 274,000 last week, versus the Bloomberg estimate calling for claims to increase to 260,000, as the prior week's figure was unrevised at 257,000. The four-week moving average grew by 2,000 to 258,000, while continuing claims declined by 8,000 to 2,121,000, south of the estimated level of 2,128,000.

Treasuries were higher, with the yield on the 2-year note declining 2 basis points (bps) to 0.72% and the yields on the10-year note and the 30-year bond dipping 4 bps to 1.74% and 2.60%, respectively. For our latest analysis on the bond markets see the video by Schwab's Managing Director of Trading and Derivatives, Randy Frederick, and Fixed Income Director Collin Martin, CFA, titled Yields Are Down, Prices Are Up: What Should Bond Investors Do?, at www.schwab.com/insights. Follow Randy and Schwab on Twitter: @randyafrederick and @schwabresearch.

Tomorrow, the heavy U.S. economic week will culminate with the release of the April nonfarm payroll report, projected to show a rise of 200,000 jobs, after gaining 215,000 in March. Private sector payrolls are anticipated to grow by 195,000 jobs, matching the prior month's gain. The unemployment rate is expected to dip to 4.9% from 5.0%. Average hourly earnings are estimated to rise 0.3% month-over-month, matching the gain seen in March.

The U.S. job market has been the key to the economy due to its many positive ripple effects across the economy, importantly consumer spending. The continued improvement will likely help stave off a recession, of which concerns have ramped up, exacerbated by last week's disappointing anemic 1Q GDP report. Schwab's Chief Investment Strategist Liz Ann Sonders discusses the recently ramped of concerns in her article, Recession: Your Time is Gonna Come … But Not Yet, pointing out that data still suggests although we’re unlikely to exit from a muddle-through state, the risk of recession is objectively low. Also, the wage component of tomorrow's report will likely garner the most scrutiny again, for its inflation/Fed implications, as well as its importance in keeping the housing market—another key economic driver—improving further. For more on the housing market, see Schwab's Director of Market and Sector Analysis, Brad Sorensen's, CFA, latest Schwab Sector Views: A Housing Update—and Why It Matters. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Schwab on Twitter: @lizannsonders and @schwabresearch.

Also, the final hour of trading tomorrow will commence with the release of the March consumer credit report.

European and Asian equities mixed

European stocks finished mixed on some weakness in the financial sector, while the euro lost ground versus the U.S. dollar. Oil & gas issues saw some strength as crude oil prices jumped on the heels of data showing U.S. output fell the most in eight months, per Bloomberg, heightened tensions in Libya, and as a large wildfire in Canada is disrupting production in the nation. Bond yields in the region traded mostly to the downside. In economic news, Markit's U.K. Services PMI Index declined to 52.3 in April, from 53.7 in March, and compared to the 53.5 level estimated by economists. A reading above 50 denotes expansion. For more on Europe, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Eight Years Later: Europe's Economy is Back and its Stocks are Leading Global Markets, at www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop. Markets in Switzerland were closed for a holiday.

Stocks in Asia finished mixed on the heels some divergent data out of China and Australia and following the two-day drop in the U.S. and Europe. Volume remained lighter than usual with Japanese markets closed for a third-straight session and South Korean markets shuttered today for holidays. Australian equities advanced as the nation reported a larger-than-expected rise in retail sales and a bigger-than-anticipated narrowing of its trade deficit for March. Mainland Chinese stocks ticked higher as traders digested the Caixin/Markit China PMI Services Index, which showed growth in the key services sector decelerated month-over-month in April. 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 www.schwab.com/oninternational, and follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch. Finally, stocks trading in India rose.

The international economic docket for tomorrow will be relatively light, offering the Nikkei Composite PMI Index from Japan and Markit Retail PMI Indexes from Germany, France, Italy and 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.

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