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Thursday, July 28, 2016

Markets Continue to Run in Place

Charles Schwab: On the Market
Posted: 7/28/2016 4:15 PM ET

Markets Continue to Run in Place

U.S. equities finished mixed and again near the unchanged mark for a third-straight session on the heels of an assortment of earnings reports, headlined by Facebook's upbeat results and disappointing guidance and an earnings miss from Ford. Adding to the mix, investors continued to weigh yesterday's unchanged monetary policy decision from the Fed, while awaiting the Bank of Japan's policy announcement slated for tomorrow. Treasuries were also mixed following a larger-than-expected rise in jobless claims and a disappointing regional manufacturing report, while the U.S. dollar, crude oil and gold were lower.

The Dow Jones Industrial Average (DJIA) declined 16 points (0.1%) to 18,456, while the S&P 500 Index rose 3 points (0.2%) to 2,170 and the Nasdaq Composite closed 15 points (0.3%) higher at 5,155. In moderate volume, 860 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.78 to $41.94 per barrel, wholesale gasoline lost $0.02 to $1.30 per gallon and the Bloomberg gold spot price decreased $2.53 to $1,337.55 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 96.71.

Facebook Inc. (FB $125) reported 2Q earnings-per-share (EPS) ex-items of $0.97, above the $0.81 FactSet estimate, as revenues rose 59.0% year-over-year (y/y) to $6.4 billion, topping the expected $6.0 billion. Shares were higher.

Ford Motor Co. (F $13) posted 2Q profits ex-items of $0.52 per share, below the projected $0.60, with revenues rising 5.2% y/y to $36.9 billion, versus the forecasted $36.2 billion. The company said it now sees risks challenging achieving its full-year guidance. F was sharply lower.

Amgen Inc. (AMGN $171) announced 2Q EPS of $2.84, above the estimated $2.74, as revenues rose 6.0% y/y to $5.7 billion, compared to the expected $5.6 billion. AMGN raised its full-year guidance. AMGN traded slightly to the upside.

Whole Foods Market Inc. (WFM $31) achieved fiscal 3Q earnings of $0.37 per share, roughly in line with forecasts, with revenues increasing 2.0% y/y to $3.7 billion, mostly matching expectations. 3Q same-store sales declined 2.6% y/y, versus the anticipated 2.3% decrease. WFM issued full-year EPS and same-store sales guidance that came in below forecasts. Shares finished solidly lower.

MasterCard Inc. (MA $96) reported 2Q EPS ex-items of $0.96, above the projected $0.90, as revenues grew 13.0% y/y to $2.7 billion, exceeding the estimated $2.6 billion. MA was nicely higher.

Hershey Co. (HSY $111) posted 2Q profits ex-items of $0.85 per share, north of the projected $0.78, with revenues increasing 3.7% y/y to $1.6 billion, roughly in line with expectations. HSY issued full-year EPS guidance with a midpoint above estimates, while raising its quarterly dividend by 6.0%. Shares gained solid ground.

For more on the global earnings landscape, see Schwab's Chief Global Investment Strategist, Jeffrey Kleintop's, CFA, article, Earnings estimates are rebounding: what it means for stocks, at www.schwab.com/marketinsight, and be sure to follow Jeff on Twitter: @jeffreykleintop.

Oracle Corp. (ORCL $41) announced an agreement to acquire NetSuite Inc. (N $108) for $109.00 per share in cash, or about $9.3 billion. ORCL was lower, while N rallied over 18%.

Jobless claims rise more than expected

Weekly initial jobless claims (chart) rose 14,000 to 266,000 last week, versus the Bloomberg estimate of an increase to 262,000, with the prior week's figure downwardly revised to 252,000. The four-week moving average declined by 1,000 to 256,500, while continuing claims rose 7,000 to 2,139,000, north of the estimated level of 2,136,000.

The Kansas City Fed Manufacturing Activity Index for July fell to -6 from June's 2 level, compared to forecasts of a rise to 4, with a reading south of zero depicting contraction.

Treasuries finished mixed, as the yield on the 2-year note lost 1 basis point (bp) to 0.71%, the 10-year note was flat at 1.50%, and the 30-year bond rate was 1 bp higher at 2.22%. Bond yields came under some pressure yesterday in the wake of the Federal Open Market Committee (FOMC) leaving its monetary policy stance unchanged as discussed by Schwab's Chief Investment Strategist, Liz Ann Sonders in her commentary, A Hopeful Transmission: Fed Holds Rates Steady, But… Liz Ann notes that the Fed kept rates unchanged but the statement had a notably more positive tone. The labor market has strengthened, inflation is up, global uncertainty has eased, and financial conditions have loosened. The September FOMC meeting should be considered on the table for a rate hike.

Also, amid the recent rally in bond yields, Schwab's Chief Fixed Income Strategist, Kathy Jones discusses in her recent article titled, With a Whimper Instead of a Bang: Is the Great Bond Bull Market Over?. Read both articles at www.schwab.com/marketinsight and follow Liz Ann and Kathy on Twitter: @lizannsonders and @kathyjones.

Tomorrow, the U.S. economic calendar will bring the first read (of three) on 2Q GDP, projected to show growth accelerated to an annualized quarter-over-quarter pace of 2.5%, after expanding by 1.1% in 1Q. Personal consumption is anticipated to accelerate solidly to a 4.3% growth rate after 1Q's 1.5% increase. The consumer is the key driver of U.S. growth and as noted in the latest Schwab Market Perspective: New Records…Same Skepticism, the economy continues to show meaningful signs of improvement. Wages are starting to perk up, appearing to help retail sales post another solid gain in June, while housing continues to be a relative bright spot in the economy, indicating better confidence among consumers. Read more at www.schwab.com/marketinsight and follow Schwab on Twitter: @schwabresearch.

As well, the Consumer Confidence Index is on tap for tomorrow, forecasted to move higher in July to a level of 90.6 from the 89.5 posted in June, as well as the Chicago Purchasing Managers Index, with economists expecting a reading of 54.0 for July, down from the 56.8 registered in June, and the 2Q Employment Cost Index, expected to show a 0.6% increase, matching the prior quarter's rise.

European equities lower, Asia mixed on monetary policy focus

European stocks finished lower, with the global markets reacting to yesterday's unchanged monetary policy decision from the Fed in the U.S. The Bank of Japan is set to deliver its monetary policy decision tomorrow, with expectations of further stimulus measures running high. Also, financials saw some pressure ahead of tomorrow's results from the European bank stress tests and amid some negative reactions to earnings results in the sector, while lower crude oil prices stymied the energy sector. In economic news, German consumer price inflation came in hotter than expected for July, while eurozone economic confidence improved for this month. The euro was higher and the British pound traded lower versus the U.S. dollar, while bond yields in the region were mostly to the downside. Amid the backdrop of heightened volatility in the global markets, Jeffrey Kleintop, CFA, offers Three Reasons Why Now is Not the Time to Retreat from Global Diversification. Read more at www.schwab.com/oninternational.

Stocks in Asia finished mixed as the global markets digest a plethora of earnings reports, along with the unchanged monetary policy decision in the U.S. yesterday, while awaiting tomorrow's conclusion of the monetary policy meeting by the Bank of Japan (BoJ). Expectations have ramped up that the BoJ will deploy more aggressive measures to bolster the economy in the form of coordinated fiscal and monetary stimulus. For more on Japan's potential increased stimulus measures see Jeffrey Kleintop's, article, What investors need to know about helicopter money, at www.schwab.com/oninternational. The yen gained some ground in the wake of the Fed's decision, weighing on Japanese stocks. Mainland Chinese equities ticked higher and those traded in Hong Kong declined slightly, with the markets still grappling with talk that the China Banking Regulatory Commission is discussing stricter curbs on wealth-management products. Meanwhile, Australian securities rose, aided by some strength in basic materials stocks, while markets in South Korea declined, and India finished higher

In addition to the Bank of Japan monetary policy meeting, the island nation is set to release a slew of other reports, including inflation data, personal income, employment figures, industrial production, construction orders, housing starts and retail sales. Other reports on tomorrow's international economic docket include PPI from Australia, trade data from China, as well as GDP figures and CPI from France, Spain and the Eurozone.

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