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Wednesday, June 08, 2016

Markets Grind Higher

Charles Schwab: On the Market
Posted: 6/8/2016 4:15 PM ET

Markets Grind Higher

U.S. equities achieved another day of modest gains, as Fed rate hike worries continue to fade and crude oil prices resumed their march upward in the midst of supply disruptions in Nigeria and a bullish oil inventory report. However, the World Bank's move to cut its global growth outlook and a mixed Chinese trade report curbed the enthusiasm. Treasuries finished slightly higher despite favorable U.S. housing and employment reports, while the U.S. dollar was lower, and gold was higher.

The Dow Jones Industrial Average (DJIA) rose 67 points (0.4%) to 18,005, the S&P 500 Index added 7 points (0.3%) to 2,119, and the Nasdaq Composite was 13 points (0.3%) higher at 4,975. In moderate volume, 868 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.87 to $51.23 per barrel, wholesale gasoline gained $0.03 to $1.62 per gallon, while the Bloomberg gold spot price jumped $18.49 to $1,262.30 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% lower at 93.62.

Lululemon Athletica Inc. (LULU $72) reported 1Q earnings-per-share (EPS) ex-items of $0.30, one penny below the FactSet estimate, as revenues rose 17.0% year-over-year (y/y) to $496 million, above the projected $488 million. 1Q same-store sales increased 6.0% y/y, versus the expected 6.2% gain. The company issued 2Q EPS guidance that was below expectations, while it reaffirmed its full-year profit outlook and slightly raised its revenue forecast for the year. Shares finished higher.

VeriFone Systems Inc. (PAY $21) posted fiscal 2Q profits of $0.47 per share, south of the expected $0.52, with revenues growing 8.6% y/y to $532 million, compared to the projected $530 million. The payment technology company cut its full-year guidance and announced that it is currently conducting a "disciplined strategic review to address underperforming businesses and reduce overall operating expense levels." PAY tumbled nearly 25%.

Target Corp. (TGT $69) announced that it increased its quarterly dividend by 7.1% to $0.60 per share, payable September 10, 2016 to stockholders of record on August 17, 2016. Shares were higher.

Shares of Southwest Airlines Co. (LUV $44) were higher after announcing that May traffic rose 6.4% y/y, and noting that it continues to expect a modest increase in its 2Q operating revenue per available seat mile (RASM)—a key industry metric.

Mortgage applications jump, job openings report easily tops forecasts

The MBA Mortgage Application Index jumped 9.3% last week, after decreasing 4.1% in the previous week. The sharp increase came as a 7.4% increase for the Refinance Index was met with an 11.7% surge for the Purchase Index. The average 30-year mortgage rate declined 2 basis points (bps) to 3.83%.

Treasuries were higher, as the yield on the 2-year note ticked 1 bp lower to 0.77%, while the yield on the 10-year note declined 2 bps to 1.70% and the 30-year bond rate decreased 3 bps to 2.51%.

The Labor Department's Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, showed 5.79 million jobs were available to be filled in April—matching the highest level since records began in 2000—versus forecasts of 5.68 million and compared to the downwardly revised 5.67 million openings in March. The hiring rate declined to 3.5% from 3.7% in March, while the separation rate remained at 3.5%. Schwab's Chief Investment Strategist, Liz Ann Sonders notes in her latest article, Are the Glory Days of Job Growth Over?, the May jobs report was more gory than glory, and although there are other confirming reports as it relates to weak jobs, there are others suggesting the economy is okay. Liz Ann addresses the question with expectations for a June rate hike having plunged, is July still on the table? Read more at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Additional jobs data will grace tomorrow's economic calendar in the form of weekly initial jobless claims, with economists forecasting a slight uptick to a level of 270,000 from the prior week's 267,000, while wholesale inventories are also slated for release, expected to show a 0.1% month-over-month (m/m) increase during April, matching that posted in March.

Europe lower, Asia mixed on global growth concerns

European equities finished mostly to the downside, with pressure on banking stocks festering to thwart a two-day winning streak, while global growth concerns persisted following a lackluster Chinese trade report and as the World Bank cut its global growth forecast. However, U.K. stocks bucked the trend following unexpected solid growth in manufacturing and industrial production for April, which came despite uncertainty regarding the possibility that the U.K. could vote to leave the European Union (EU), known as a Brexit. For analysis on the issue read our article, Brexit: Will the UK Leave the EU? at www.schwab.com/insights and Schwab's Chief Global Investment Strategist,Jeffrey Kleintop's, article, Brexit: 5 Things Investors Need to Know at www.schwab.com/oninternational. Follow Jeff on Twitter: @jeffreykleintop. Also, oil & gas issues provided some support as crude oil prices remained in rally mode. The British pound was little changed and the euro traded higher versus the U.S. dollar. Bond yields in the region were mixed, while the European Central Bank began its purchases of corporate bonds as part of the central bank's expanded stimulus measures announced in March.

Stocks in Asia finished mixed with the continued rally in crude oil prices and some weakness in the yen helping the markets, while traders digested a lackluster trade report out of China. Japanese equities advanced, with the yen seeing some late-session weakness to lift stocks, while the nation reported an upwardly revised 1Q GDP report. Japan's 1Q GDP growth was adjusted to a 1.9% annualized quarter-over-quarter pace, matching forecasts, from the 1.7% expansion preliminarily reported, and compared to the 1.8% contraction seen in 4Q. Mainland Chinese stocks and markets in Hong Kong dipped after the nation's exports fell slightly more than expected and imports declined by a much smaller amount than anticipated for May. Schwab's Jeffrey Kleintop, notes in his article, Five ways investors can make the most of slower growth, making the most out of a slower growth environment may help define investment success in the coming years. The pace of productivity growth will be important to monitor and adapt to as conditions evolve. This potential long-term theme may lead investors to find bright spots among mega-caps and emerging market stocks. Read more at www.schwab.com/oninternational. Meanwhile, securities traded in Australia and India finished flat, while South Korean listings rose modestly.

Data from China will likely highlight tomorrow's international economic calendar, with the Asian nation set to release CPI and PPI figures, while across the pond, Germany will post trade data, and labor statistics will come from Italy.

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