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Wednesday, July 20, 2016

Tech Stocks Lead Gains

On the Market
Posted: 7/20/2016 4:15 PM ET

Tech Stocks Lead Gains

U.S. stocks advanced in the wake of some upbeat global earnings reports, headlined by Dow member Microsoft's solid quarterly results, which aided in extending the blue-chip index's current winning streak to nine-straight sessions. Also, Morgan Stanly added to the growing number of domestic financial companies that have bested 2Q earnings estimates. Crude oil prices reversed to the upside on the heels of a bullish U.S. inventory report. Treasuries were lower, along with gold, while the U.S. dollar was nearly unchanged.

The Dow Jones Industrial Average (DJIA) rose 36 points (0.2%) to 18,595, the S&P 500 Index gained 9 points (0.4%) to 2,173 and the Nasdaq Composite increased 54 points (1.1%) to 5,090. In moderate volume, 737 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.30 to $45.75 per barrel, wholesale gasoline shed $0.02 to $1.36 per gallon and the Bloomberg gold spot price decreased $18.76 to $1,313.25 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 97.06.

Dow member Microsoft Corp. (MSFT $56) reported fiscal 4Q earnings-per-share (EPS) ex-items of $0.69, above the $0.58 FactSet estimate, as revenues rose 2.1% year-over-year (y/y) to $22.6 billion, versus the projected $22.2 billion. The company's revenue in its productivity and business processes and PC units both grew, while it said its cloud business is seeing significant customer momentum. Shares finished solidly higher.

Morgan Stanley (MS $29) posted 2Q EPS of $0.75, well above the estimated $0.59, with revenues declining 9.0% y/y to $8.9 billion, topping the forecasted $8.3 billion. The company said it saw strong performance in sales and trading, reflecting continued strength in equity sales and trading, along with solid results in fixed income activity. MS traded higher.

United Continental Holdings Inc. (UAL $48) registered 2Q profits ex-items of $2.61 per share, compared to the expected $2.56, as revenues declined 5.2% y/y to $9.4 billion, roughly in line with estimates. UAL announced an additional $2.0 billion share repurchase program. Shares were higher.

Mortgage applications decline

The MBA Mortgage Application Index declined 1.3% last week, after rising 7.2% in the previous week. The decrease came as a 0.9% decline for the Refinance Index was accompanied by a 2.0% drop for the Purchase Index. The average 30-year mortgage rate rose 5 basis points (bps) to 3.65%. Tomorrow, the U.S. economic calendar will bring the highlight of the housing-heavy data week, with the release of June existing home sales, projected to decline 0.9% from the prior month's more than nine-year high to an annual rate of 5.48 million units. Upbeat domestic data has helped fuel the recent stock market rally that took the Dow and S&P 500 to all-time highs, as discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, 19th Nervous Breakout: Stocks Finally Reach New Highs, at www.schwab.com/marketinsight.

Additional releases tomorrow include weekly initial jobless claims, forecasted to increase to a level of 265,000 from the previous week's 254,000, and the Leading Index, expected to have advanced 0.2% m/m during June, following the 0.2% decrease posted in May.

Treasuries were lower, with the yield on the 2-year note gaining 2 bps to 0.71%, the yield on the 10-year note advancing 3 bps to 1.58%, and the 30-year bond rate rising 4 bps to 2.30%. Bond yields have rebounded as of late from record lows on the favorable U.S. economic data and eased U.K. Brexit fallout. For analysis see the video from Liz Ann Sonders and Managing Director of Trading and Derivatives, Randy Frederick, titled Strong Jobs Report: Recession off the Table but Is Rate Hike Back On?, at www.schwab.com/insights. Follow Liz Ann and Randy on Twitter: @lizannsonders and @randyafrederick.

Europe higher on earnings results, Asia mixed amid lack of catalysts

European equities traded higher, with some upbeat earnings reports in the region aiding sentiment. German producer price inflation came in hotter than expected for June, while the May U.K. employment change rose much more than expected, resulting in an unexpected dip in the nation's unemployment rate to 4.9% from 5.0%. Conviction appeared to be unconstrained even on the eve of tomorrow's monetary policy decision from the European Central Bank. The euro dipped and the British pound gained ground on the U.S. dollar, while bond yields in the region were mostly higher. Amid the backdrop of heightened volatility in the region as the markets grapple with the impact of a Brexit, Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers analysis for investors in his article, After the Brexit Vote: What Lies Ahead for Markets?, and gives us Three Reasons Why Now is Not the Time to Retreat from Global Diversification. Read both articles at www.schwab.com/oninternational and be sure to follow Jeff on Twitter: @jeffreykleintop.

Stocks in Asia finished mixed amid some negative sentiment following yesterday's lackluster performance in the U.S. markets. Japanese equities rose, adding on to last week's rally as some additional weakness in the yen continued amid increased hopes of more aggressive stimulus measures from the Bank of Japan, which meets next week. 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. As well, department store sales in the island nation declined at a pace that was less than economists' forecasts. Mainland Chinese shares declined, while stocks trading in Hong Kong jumped with focus on the yuan increasing as state banks stepped in to try to mitigate the currency's recent slide. Elsewhere, Australian securities gained ground despite continued weakness in basic materials issues, while South Korean stocks ticked lower and Indian equities advanced as the nation pumped $3.4 billion into its state banks in order to boost capital.

Tomorrow, the international economic docket will yield the All Industry Activity Index and machine tool orders from Japan and business confidence from Australia. Releases from across the pond will include business and manufacturing confidence from France, retail sales and public sector net borrowing from the U.K., as well as the aforementioned monetary policy decision from the European Central Bank.

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